Mahindra

A STUDY OF INVENTORY MANAGEMENT

At

MAHINDRA&MAHINDRA LTD, ZAHEERABAD

CONTENTS

Page No.I. CHAPTER 7 -

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INTRODUCTION SCOPE OBJECTIVES RESEARCH&METHODOLOGY

II. CHAPTER 25-49

INDUSTRY PROFILE COMPANY PROFILE

III. CHAPTER 50-72

REVIEW OF LITERATURE

IV. CHAPTER 73-82

ANALYSIS AND INTERPRETATION

V. CHAPTER 83-86

FINDINGS AND SUGGESTIONS CONCLUSION

BIBILIOGRAPHY 87-88

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I. CHAPTER Introduction Scope Objectives Research Methodology Limitations

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INTRODUCTION

Every enterprise needs inventory for smooth running of activities. It serves, as

a link between production and distribution. For every process there is, generally, a

time lag between the recognition of a need and its fulfillment. The greater the time

lag, the higher the requirement for inventory. The unforeseen fluctuations in demand

and supply of goods also necessitate the need for inventory. It provides a cushion for

future price fluctuations.

The investment in inventories constitutes the most significant part of current

assets/working capital in most of the undertakings. Thus, it is very essential to have

proper control and management of inventories. The purpose of inventory management

is to ensure availability of materials in sufficient quantity as and when required and

also to minimize investment in inventories.

The investment in inventory is very high in most of the undertakings engaged

in manufacturing, wholesale and retail trade. In India, a study of 29 major industries

has revealed that the average cost of materials is 65paise and the cost of labor is

10paise and overheads is 15paise of a rupee, 10%is profit. It is necessary for every

management to give proper attention to inventory management. A proper planning of

purchasing, handling, storing and accounting should form a part of inventory

management.

An efficient system of inventory will determine,

What to purchase

How to purchase

From where to purchase

Where to store etc.,

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There are conflicting interests of different departmental heads over the issue of

inventory. The finance manager will try to invest less in inventory because to him it is

an idle investment, where as production manager will emphasis to acquire more

inventory as he does not want any interruption in production due to shortage of

inventory. The purpose of inventory management is to keep the stocks in such a

neither way that there is over-stocking nor under-stocking. The over-stocking will

mean a reduction of liquidity and starving of other production processes whereas

under-stocking, on other hand, will result in stoppage of work. The investments in

inventory should be kept in reasonable limits.

MEANING AND NATURE OF INVENTORY

There are different meanings of inventory in different languages. In

accounting language it may mean stocks of finished goods only. In a manufacturing

concern, it may include raw materials; work in process and stores, etc., to understand

the exact meaning of the work “inventory”

Inventory may include the following things:

1. RAW MATERIALS:

Raw materials form a major input into the organization. They are required to

carry out production activities uninterruptedly. The quantity of raw materials required

will be determined by the rate of consumption and the time required for replacing the

supplies. The factors like the availability of raw materials and government

regulations, etc., too affect the stock of raw materials.

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2. WORK-IN-PROGRESS:

The work-in-progress is that stage of stocks, which are in between raw

materials and finished goods. The raw materials enter the process of manufacturing

but they are yet to attain a final shape of finished goods. The quantum of work-in-

progress depends upon the time taken in the manufacturing process. The greater the

time taken in manufacturing, the more will be the amount of work-in-progress.

3. CONSUMABLES:

These are the materials, which are needed to smoothen the process of

production. These materials do not enter directly into production but they act as

catalysts. Consumables may be classified according to their consumption and

criticality. Generally, consumables stores do not create any supply problem and form

a small part of production cost. There can be instances where these materials may

account for much value than the raw materials. The fuel oil may form a substantial

part of the cost.

4. FINISHED GOODS:

These are goods, which are ready for the consumers. The stock of finished

goods provides a buffer between production and market. The purpose of maintaining

inventory is to ensure proper supply of goods to the customers. In some concerns the

production is under taken on order basis. In these concerns there will not be a need for

finished goods inventory. The need for finished goods inventory will be more when

production is undertaken in general without waiting for specific orders.

5. SPARES:

Spares also form a part of inventory. The consumption pattern of raw

materials, consumables, finished goods are different from that of spares. The stocking

policies of spares are different from industry to industry. Some industries like

transport will require more spares than the other concerns. The costly spare parts like

engines, maintenance spares etc., are not discarded after use. Rather they are kept in

ready positions for further use. All decisions about spares are based on the financial

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cost of inventory on such spares and the cost that may arise due to their non-

availability

PURPOSE/BENEFITS OF HOLDING INVENTORY

Although holding inventories involves blocking of firm’s funds and cost of

storage and handling, every business enterprise has to maintain a certain level of

inventories to facilitate uninterrupted production and smooth running of business.

In the absence of inventories a firm will have to make purchases as soon as it

receives orders. It will mean loss of time and delays in execution of orders, which

sometimes may cause loss of customers and business. A firm also needs to maintain

inventories to reduce ordering cost and avail quality discounts, etc.

Generally there are three main purposes or motives of holding inventories.

The transaction motive, which facilitates continuous production and timely

execution of sales orders.

The precautionary motive, which necessitates the holding of inventories for

meeting the unpredictable changes in demand and supplies of materials.

The speculative motive which induces to keep inventories for taking

advantage of price fluctuations, saving in re-ordering costs and quantity

discounts, etc.,

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RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firm’s funds and incurrence of

capital and other costs. It also exposes the firm to certain risks. The various costs and

risks involved in holding inventories are as below:

1. CAPITAL COSTS:

Maintaining of inventories results in blocking of the firm’s financial

resources. The firms have, therefore, to arrange for additional funds to

meet the costs of inventories. The funds may be arranged from, own

resources or from outsiders. But, in both cases, the firm incurs a cost. In

the former case, there is opportunity cost of investment while in the later

case, the firm has to pay interest to the outsiders.

2. STORAGE AND HANDLING COSTS:

Holding of inventories also involves cost on storage as well as handling of

materials. The storage costs include the rental of the go down, insurance

charges, etc.

RISK OF PRICE DECLINE:

There is always a risk of reduction in the prices of inventories by the

suppliers in holding inventories. This may be due to increased market

supplies, competition or general depression in the market.

RISK OF OBSOLESCENCE:

The inventories may become obsolete due to improved technology,

changes in requirements, change in customer’s tastes etc.

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MATERIAL CONTROL

In most of the manufacturing concerns. The cost of raw materials represents a

major part of the total cost of production. Hence proper control over material is

necessary from the time the order is placed with the suppliers till they are actually

consumed. An efficient system of material control will lead to a significant reduction

in production cost.

Material control may be defined as the “systematic control over the

procurement, storage and usage of materials so as to maintain an even flow of

materials and avoiding at the same time excessive investment in inventories”.

Material control covers three stages namely

Purchase of material

Storing of material

Issue of material

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OBJECTIVES:

The objectives of material controls as follows

1. To ensure regular and uninterrupted supply of materials i.e., to make materials

available as and when they are needed.

2. To keep investment in stock at a reasonable levels, so that there is no loss of

interest on capital.

3. To purchase the materials at a reasonable price without sacrificing the quality

of such materials.

4. To avoid abnormal wastage by exercising direct control.

5. To avoid the risk of spoilage and obsolescence of the materials by fixing the

maximum stock level.

IMPORTANCE OF MATERIAL MANAGEMENT

For any manufacturing organization materials, supplies, equipments are of

primary importance. The reasons are:-

1) Nothing can be produced with out materials supplies, or equipment

2) Materials constitute major part of total cost of products. This varies depending

up on type of product.

3) Because materials from major part of total cost these offer a very good scope

for reduction of total cost. A small percent material cost can result in large

percent increase in profitability.

4) End product quality a part from other factors largely depends on quality of

input materials.

5) Any interruption or shortage in supply of materials when needed by the

production department in many situations can result in complete stoppage of

production.

6) Because of growing concern for pollution same contribution has to be

materials management by finding substitutes which are less polluting or less

damaging.

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7) In the long term welfare and interest of the mankind the natural resources

(most of the materials ultimately came from one or the other natural resources)

need to be conserved and regenerated along with planned usage.

Right material.

Right quality.

Right quantity.

Right time.

Right price.

Low pay rolls costs.

Proper records.

ISSUE OF MATERIAL MANAGEMENT:

As per major activity groups involved in material management in any manufacturing

organization

1 Issue related to materials planning

2 Issues related to purchase

3 Issues related to stores or inventory

4 Issues related to material handling & display

1. ISSUE RELATED TO MATERIALS PLANNING:-

Materials identification.

Standardization

Make of buy

Coding & classification

Quality specification:

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1. By providing samples or proto type

2. By providing manufacturing operation specification

3. By brand or trade name

4. By specifying well accepted market grades

5. By specifying testing procedures and relevant standards

6. By specifying / providing engineering drawing / blue prints

2. ISSUE RELATING TO PURCHASING :

1. CENTRALISED VS DECENTRALALISED

PURCHASING:

This issue is comparatively more important & relevant to large corporations

operating multiple plants may or may not be located at different places. For a single

place organization decentralization might be feasible on a very limited scale.

A) favorable price and items can be negotiated because of large volume

purchase

B) specialized vendor’s/ancillaries can be encouraged to take up manufacture

& supply of items/components of required & specified qualities

C) administration and control is comparatively more easy & efficient

D) number of personnel required is comparatively less resulting in to reduced

overhead cost of purchasing

E) paper work record keeping is consolidated possible to developing uniform

procedures and policies

F) Easier to maintain the quality of purchased parts/items through centralized

testing and inspection. It is also possible to conduct testing and inspection

facilities

G) It is beneficial to the vendor also in case the size of order constitutes major

proportion of his total production capacity

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3. SINGLE SOURCE VS MULTIPLE SOURCE :

The purchase dept can decide to choose and depend on a single source for

each of same selected items in the extreme case the department can decide to use

single source for each of the item

A) for small total annual requirement of an item multiple sources tend to increase

clerical and other expenses

B) due to bulk purchases from single source it becomes possible to avail of

discounts of prices or frights or other services

C) suppliers tries to co-operate update & improve his services because of long

term relation

D) No of personnel required is comparatively less, resulting in to reduced

overhead cost of purchasing.

E) Paper work record keeping in consolidated possible to develop uniform

procedures and policies.

F) Easier to maintain the quality of purchased parts/ Items though centralized

testing and inspection. It is also possible to conduct testing and inspection at

the vendor’s facilities.

G) It is beneficial to the vendor also in case the size of order constitutes major

proportion of his total production capacity.

4. VENDOR / ANCILLARY DEVELOPMENT: -

This is same what similar to single/multiple supplier decision and also an out

come of make/buy decision. When total annual requirement is large and item is to be

brought from the market, then it is worth it to encourage ancillaries to take-up

production and supply of the item to a par cent company.

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Providing item design/drawings

Providing technology for production

Helping in arrangement of finance

Helping by loading of its technical persons

Extending credit facilities

Extending quality control/testing facilities

Indirectly/directly helping in getting raw materials.

4. SIZE AND TIMING OF PURCHASE ORDERS: -

This is an integrated issue. Stores and inventory, production schedule,

suppliers capability time lag, reliability cost of holding inventory and cost of placing

orders, etc. all have an important bearing an how much to order and when to order

Relative importance of material or an item to the organization is also an

important issue since all items need not be considered equally for inventory

management and control.

5. A B C ANALYSIS:-

‘A’ class items are subjected to highest level of control supervision and

management.

‘B’ class items are subjected to medium level of control supervision and

management

‘C’ class items usually are not subjected to elaborate, control/management

since the cost of efforts is not worth it.

For ‘A’ & ‘B’ class items precise methodical models for determination of

EOQ frequency of purchase; safety stock/buffer stock level etc, can be used.

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6. H.M.L CLASSIFICATION:-

High medium and low classification is done on the basic of important of

price/unit unlike ABC. Where total consumption value was considered it is for the

management to decide beyond which level of price/unit, the items would be classified

as ‘H’ ‘M’ & ’L’. ‘H’ classified items are required to be subjected to highest level of

control supervision and management the general guidelines are accordingly devised

by the management in respect to each of the classification.

7. VED CLASSIFICATION:-

The classification i.e. vital, essential, desirable, is done on the basis of

importance of an item to the production process. Those which are highly important

and whose non-available, may renders the stoppage of the production are classified as

‘V’, where as those because of which if not available the production may be affected

or hampered are classified as ‘E’ and others classified as ‘D’ in this classification the

opinion of the of technical people in the production process plays very important role

one can formulate a matrix considering ABC and VED analysis.

8. SED-CLASSIFICATION:-

Scarce difficult and easy classification is with respect to their availability in

the market scarce items are those which are scarce, either important or restricted. Or

rationed

Items, usually in short supply and not available uniformly throughout the year. ‘D’

items ate those which are available in the local market. ‘E’ items are those which are

easily available in the local market as and when needed.

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9. FSN-CLASSIFICATION:-

The fast slow non-moving classification is based on rate of movement of items

for the store the item lapsed since last issue from the stores becomes one of the

indicators to be used for this classification the fast moving items ‘F’ need to be

reviewed frequently for placing the purchase order. Where as non moving ‘N’ items

need to be received for disposal consideration.

All the classifications help in identifies more important items to be

taken up for close supervision and management by materials

management on selective bases.

ISSUES RELATING TO STORAGE AND MATERIAL

HANDILING:-

How much inventory of each item is to be maintained? This is the result of

trade off between keeping very high inventory resulting in to high inventory holding

costs vs. keeping very low inventory with high risk of stock out. A related requisition

is when to order and how much to order? What should be the level of reorder point

and safety stock the models relating

LOCATION AND LAYOUT OF STORAGE: -

Location of store should be convenient from point of view point of view of

receipt and inspection of material and also from the point of view of easy accessibility

to internal users it also depends on the type of items handle e.g.:- heavy material

requiting rail head etc.

Safety from theft and pilferage

Danger etc,

Easy and safe storage

Minimizing unnecessary handling with in the stores

Efficient use of space

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OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives are operational and financial. The operational objectives mean

that the materials and spares should be available in sufficient quantity so that the work

is not disrupted for want of inventory. The financial objectives means that

investments in inventories should not remain idle and minimum capital should be

locked in it.

The following are the objectives of inventory management:

To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any time and the customers demand should

also be met.

To maintain investments in inventories at the optimum level as required by

the operational and sales activities.

To avoid both under-stocking and over-stocking of inventory.

To keep materials cost under control so that they contribute in reducing cost

of production and overall costs.

To eliminate duplication in ordering or replenishing stocks. This is possible

with the help of centralized purchasing.

To minimize losses through deterioration, pilferage, wastages and damages.

To design proper structure for inventory management. A clear-cut

accountability should be fixed at various levels of the organization.

To ensure perpetual inventory control so that materials shown in stock

ledgers should be actually lying in the stores.

To ensure right quality goods at reasonable prices. Suitable quality standards

will ensure proper quality of stocks. The price-analysis, the cost-analysis

will ensure paying of proper prices.

To facilitate furnishing of data for short-term and long-term planning and

control of inventory.

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OBJECTIVES OF THE STUDY

To analyze the stock levels like reordering level, minimum stock level, maximum

stock level, and inventory control method.

To analyze the various costs involved in the inventory management.

To evaluate the process of supply chain management.

To analyze whether JIT (just in time) system can be implemented or not.

To give suggestions relating to efficient utilization of inventories in Mahindra &

Mahindra.

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RESEARCH METHODOLOGY

Any of the above systematic and scientific research lies in its methodology giving a

clear idea of the forms of study and procedure adopted in conducting it and stating the

purpose become essential parts of every study.

So, in this study the information furnished from secondary source for three years

i.e2004-2005, 2005-2006, 2006-2007.

Secondary source:

The secondary data has been collected from

inventory reports

annual reports

magazines

newspapers

books

Internet.

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LIMITATIONS:

The time confined for the study is very limited which is not sufficient

to make a comprehensive study.

The complete data cant be obtained as it was confidential and was not

revealed to outsiders.

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II. CHAPTER Industry Profile Company Profile

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INDUSTRY PROFILE

UNIT SCENARIO:

The MAHINDRA & MAHINDRA plant is located at 108 kilometers from the state

capital of AP at Zaheerabad.It has an area of 350 hectors land including all facilities.

In July 1983 Hyderabad Allwyn limited (HAL) a state public sector agreement with

Nissan Motor Company (NMC) limited of Japan for manufacturing new generation of

light commercial vehicles (LCVs) in India. The scope of transfer stocks of imported

kits procured at favorable rates during the year 1962 vehicles was sold. Although

company achieved 60% localization in its products, yet the raising value of yen

continued to adversely affect its financial crisis and both. The financial corporation

and industrial development corporation were facing massive cuts in government

findings. Therefore, in order to cover the closing down of units, the state government

indifference to the state industrial policy decided to sell Allywn Nissan Ltd (ANL) to

capable of business houses, in the case preferably and established automobile

company. After that an intensive negotiation MAHINDRA & MAHINDRA LTD; the

country’s leading manufacturing of jeeps and tractors entered into the memorandum

of understanding with HAL on 10th June 1988 and agreed to acquire 26% of share

capital in ANL and there after took control of the company’s management with the

transferor of shares and management. The joint venture agreement was entered into 7 th

November 1988 by M & M with NMC. The name of the company was changed to

MAHINDRA ALLWYN NISSAN LTD.M & M finally took entire control of the

operation of the plant on 1992.

PICK UP RANGE:

Mahindra utility

Mahindra pick up

Mahindra NC 640 DP

Mahindra pick up CBC

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MAXX RANGE:

Mahindra Maxx

Mahindra Maxx LX

CL RANGE:

Mahindra MM 540/550 DP

Mahindra MM 540/550 XDB

Mahindra MM 540 DP

Mahindra MM ISZ-petrol soft-top

COMMANDER RANGE:

Mahindra commander 650 DI

Mahindra commander 750 ST.

HARD TOP RANGE:

Mahindra economy

Mahindra Marshal

Mahindra MM775 XDB

Mahindra three and five door hard top

Mahindra Marshal 2000 Deluxe

Mahindra marshal DX Royal

ALTERNATIVE FUEL RANGE:

Mahindra CNG- three door

Mahindra Bijlee

Mahindra FJ CNG mini bus.

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ARMY RANGE:

Mahindra rakshak(Bullet-proof vehicle)

Mahindra MM550 XD

THREE WHEELER RANGERS:

Mahindra champion DX

Mahindra champion

BUSINESS:

The main business of MAHINDRA & MAHINDRA limited is to manufacture

the utility vehicles and light commercial vehicles and tractor to market these

vehicles for customers. The mahindra group is divided into 6 sectors and these

are the strategic core business units.

Automotive sector

Farm equipment

Automotive component sector

Trade and finance sector

Infra structure development sector

Telecom software exports sector.

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COMPONY PROFILE

Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2.5

billion Mahindra Group, which has a significant presence in key sectors of the Indian

economy. A consistently high performer, M&M is one of the most respected

companies in the country.

Set up in 1945 to make general-purpose utility vehicles for the Indian market, M&M

soon branched out into manufacturing agricultural tractors and light commercial

vehicles (LCVs). The company later expanded its operations from automobiles and

tractors to secure a significant presence in many more important sectors.

The Company has, over the years, transformed itself into a Group that caters to the

Indian and overseas markets with a presence in vehicles, farm equipment, information

technology, trade and finance related services, and infrastructure development.

M&M has two main operating divisions:

1. The Automotive Division manufactures utility vehicles, light commercial

vehicles and three wheelers.

2. The Tractor (Farm Equipment) Division makes agricultural tractors and

implements that are used in conjunction with tractors, and has also ventured

into manufacturing of industrial engines. The Tractor Division has won the

coveted Deming Application Prize 2003, making it the only tractor

manufacturing company in the world to secure this prize. The resurgence of

the automotive industry and M&M's success in exploiting it, has created an

opportunity to strengthen the company through an entry into the Auto

Components business, the growth of which is being fueled by both, domestic

and export demand.

M&M employ around 11,500 people and have six state-of-the-art-manufacturing

facilities spread over 500,000 square meters. M&M have also set up two satellite

plants for tractor assembly.

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M&M have 49 sales offices that are supported by a network of over 780 dealers

across the country. This network is connected to the Company's sales departments by

an extensive IT infrastructure.

M&M's outstanding manufacturing and engineering skills allow it to constantly

innovate and launch new products for the Indian market. The Company's significant

recent product launch, the "Scorpio", resulted in the Company winning the National

Award for outstanding in-house research and development from the Department of

Science and Industry of the Government in 2003. The Company has launched India's

first tractor with turbo technology - the Mahindra Sarpanch 595 DI Super Turbo.

The Company's commitment to technology-driven innovation is reflected in

Company's plans of setting up of the Mahindra Research Valley, a facility that will

house the Company's engineering research and product development wings, under one

roof.

The M&M philosophy of growth is centered on its belief in people. As a result, the

company has put in place initiatives that seek to reward and retain the best talent in

the industry. M&M is also known for its progressive labor management practices.

In the community development sphere, the company has implemented several

programs that have benefited the people and institutions in its areas of operations.

Founders

J.C.Mahindra was a mechanical engineer from VJTI, Mumbai. He was

appointed the country’s first Iron and Steel Controller.

K.C.Mahindra, a Cambridge educated economist, was partner with Martin

Burn, London, an agent to IISCO. The Government of India also requisitioned

his services. He took over as Chairman of India Supply Mission to

Washington, USA.

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Inspiration

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

Pandit

Jawaharlal Nehru of building a strong Independent India

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

Indian vehicle that would be rugged, tough and capable of tackling the

Indian terrain.

Mission

At M &M, will design, manufacture and market Internationally Competitive,

Automotive Vehicles farm equipment and products. Our customer’s needs –

especially the requirement of safety, reliability value for money and farm

productivity

Will be our primary concern. In our Business operations are will ensure sustained

profitability and growth we will create a dynamic collaborative in which our

people will feel challenged and cared or and build an organization that is resilient

flexible and productive. As an organization we will be recognized for high Ethical

Standards

and responsiveness to the social environment we will continue to be.

Objectives

The main objective of Mahindra is that they want to maintain none to second

position and be the Best top company by maintaining talented people.

1. Customer Focus:

People Culture:

By Encouraging team work

By providing a healthy and good work environment

By Sake practices

By appraisal and Reward System.

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Community Culture:

By setting high ethical standards.

By responsible to environmental needs.

By to community welfare.

Time Discipline:

By Meeting set targets

By delivering on time

By ensuring service on time

By quick response to needs

Quality Discipline:

By positive reputation for quality

By following international quality assurance, systems and

procedures.

By delivering right time and every time.

Cost Discipline:

By elimination of non-value added work.

Through continues improvement.

By productive use of assets.

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Mahindra & Mahindra’s Logo symbolizes:

The road ahead that links the company’s past with its future.

The road through which the company’s thoughts, ideas, designs, and products

will travel.

A forward looking organization moving towards new horizons.

Innovation and dynamism.

This Logo is created by Mr.Shyam Kumar from the Automotive Sector – Nasik.

Core purpose and values

Core Purpose

“Indians are second to none in the world. The Founders of our Nation and of

our organization passionately believed this. We will prove them right by

believing in ourselves and by making Mahindra & Mahindra Limited known

worldwide for the quality, durability and reliability of its products and

services.”

Core Values

I. Good Corporate Citizenship

As in the past, we will continue to seek long term success, which is in

alignment with our country’s needs. We will do this without

compromising on ethical business standards.

ii. Professionalism

We have always sought the best people for the job and given them the

freedom and opportunity to grow. We will continue to do so. We will

support innovation and well reasoned risk taking, but will demand

performance.

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iii. Customer First

We exist and prosper only because of the customer. We will respond to

the changing needs and expectations of our customers, speedily,

courteously and effectively.

iv. Quality Focus

Quality is the key to delivering value for money to our customers. We

will make quality a driving value in our work, in our products and in our

interactions with others. We will do it “first time right.

v. Dignity of the Individual

We will value the individual dignity, uphold the right to express

disagreement and respect the time and efforts of others. Through our

actions we will nurture fairness, trust and transparency.

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MANAGEMENT PROFILE

Board of Directors

The Board of Directors of the Company has, as its members, eminent persons

from Industry, Finance, Investment and other branches of business, who bring

diverse experience and expertise to the Board.

The Company's current Board of Directors is as follows:

Keshub Mahindra Chairman

Anand G. MahindraVice-Chairman &

Managing Director

Deepak S. Parekh Director

Nadir B. Godrej Director

M. M. Murugappan Director

V. K. Chanana Nominee Director

Narayanan Vaghul Director

A. S. Ganguly Director

R.K. Kulkarni Director

Anupam Puri Director

Bharat Doshi Executive Director

Alan Durante Executive Director

Arun NandaExecutive Director &

Secretary

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The Management Board

The Management Board comprises the Presidents of the business Sectors as well

as heads of certain key corporate functions. The Vice-Chairman & Managing

Director chair the Board. The Board meets regularly and serves as a forum

through which the Corporate Centre implements its group responsibilities, which

include formulation of Group policies and strategies, goal setting, raising and

allocating financial resources, performance measurement, consolidated

accounting and Group Human Resource development.

The Management Board comprises:

Mr. Anand G.Mahindra

Vice Chairman & Managing Director

Mr. Alan Durante

Executive Director &

President - Automotive Sector

Mr. Bharat Doshi

Executive Director &

President - Trade & Financial Services Sector

Mr. A.K. Nanda

Executive Director & Secretary &

President - Infrastructure Development Sector

Mr. Anjanikumar Choudhari

President - Farm Equipment Sector

& Member of the Management Board

Mr. Rajeev Dubey

Executive Vice President - Human Resources and Corporate Services

& Member of the Management Board

Mr. Hemant Luthra

President - Mahindra Systems & Automotive Technologies

& Member of the Management Board

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Mr. Raghunath Murti

Managing Director - Mahindra Intertrade Ltd.

& Member of the Management Board

Mr. Uday Y. Phadke

Executive Vice President - Finance, Accounts & Legal Affairs

& Member of the Management Board

Mr. Ulhas N. Yargop

President - Telecom & Software Sector

& Member of the Management Board

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CLASSIFICATION OF M&M BUSSINESS SECTORS

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BUSINESS SECTORS

Automotive Farm

Trade & financial services Information

Infrastructure Automotive

Automotive sector

M&M's automotive division was created in 1994 following an organizational

restructuring, but its origins go back to 1954. That was when the company entered

into collaboration with Willys Overland Corporation (now part of the Daimler

Chrysler group) to import and assembles the Willys Jeep for the Indian market. M&M

began producing light commercial vehicles (LCVs) in 1965.

The Group Companies are:

1. Automotive Division

M&M's automotive division is in the business of manufacturing and marketing

utility vehicles and LCVs. It is the leader in this segment, with a market share

in excess of 50 per cent. The M&M brand symbolizes ruggedness, durability,

reliability, easy maintainability and operational economy. The customer

profile here includes individuals, traders, entrepreneurs, contractors, tour

operators, taxi owners, car hire companies, government departments and

institutions, and the Indian army.

2. Automartindia Ltd.

Automartindia is a business-to-consumer portal that offers a comprehensive

picture of the Indian automobile market. Launched in collaboration with a

group of partner organizations, it offers a wide range of new vehicles and a

virtual marketplace to buy or sell used automobiles. The site also features car

reviews, price information, technical comparisons of different models, and

ratings to help the consumer make an informed decision.

34

Farm Equipment sector

The origins of M&M's Farm Equipment Sector lie in the formation of a joint

venture in 1963 between the Company, International Harvester Inc., and Voltas

Limited, christened the International Tractor Company of India (ITCI). This

enterprise was a shot in the arm for the green revolution then beginning to sweep

the country. The launch of high-performance tractors played a vital role in the

mechanization of Indian agriculture.

In 1977, ITCI merged with M&M and became its Tractor Division. After M&M's

organizational restructuring in 1994, this division was called the Farm Equipment

Sector.

M&M's Farm Equipment Sector is the largest manufacturer of tractors in India

with sustained market leadership of over 19 years. The Farm Equipment Sector

is the first Tractor Company in the world to win the Deming Application

Prize. Also, it is the fourth company in India and the 10th in the world,

outside Japan, to win this prize. It designs, develops, manufactures and markets

tractors as well as implements which are used in conjunction with tractors. The

tractor industry in India is segmented by horsepower into the lower segment of 25

HP, mid-segment of 35 HP and higher segment of 45 HP and above. The

Company's Farm Equipment Sector has a presence in all these segments across all

states.

The Farm Equipment Sector has also ventured into manufacturing of Industrial

Engines. M&M Industrial engines are used for various applications like Genset,

Industrial, Construction, Marine Compressors etc. These engines are

manufactured at the Company's state of art Engine Assembly plants at Kandivli

and Nagpur.

M&M have two main tractor manufacturing plants located at Mumbai and Nagpur

in Maharashtra. Both these plants have been certified for ISO 9001, QS-9000 and

ISO 14001.

35

Apart from these two main manufacturing units, the Farm Equipment Sector has

satellite plants located at Rudrapur in Uttarachal and Jaipur in Rajasthan.

The Farm Equipment Sector of the Company has a strong and extensive dealer

network of over 450 dealers for sales and service of tractors and spare parts. 28

area offices, situated in all the major cities and covering all the principal states

manage this dealer network.

M&M tractors have earned goodwill and trust of more than 8, 00, 000 customers

and the 'Mahindra' tractor has come to be recognized as a powerful symbol of

productivity and performance.

In addition to capturing the domestic market, M&M's Farm Equipment Sector has

also found significant success in the international market. Whilst around 90% of

our tractor exports are to the USA, M&M also exports tractors to neighboring

countries like Nepal, Bangladesh and Sri Lanka and African countries like

Uganda, Nigeria, and Zambia etc.

Mahindra USA, a wholly owned subsidiary based in the USA, has established a

network of 140 dealers. Several other international markets are being developed to

expand M&M's global reach in the Farm Equipment Sector.

The Group Companies are:

1. Mahindra USA Inc.

Mahindra USA, a wholly owned subsidiary of M&M, began selling tractors in

America in 1994 from its headquarters in Tomball, Texas. It has since firmly

established the Mahindra brand and captured a significant share of the

American small-tractor market. The company has two-wheel- and four-wheel-

drive utility tractor lines for part-time farming enthusiasts, turf managers,

nursery operators, and small and medium-sized contractors. Its products have

gained considerable brand recall among users of small tractors in the US.

36

2. Mahindra Gujarat Tractor Ltd.

This company was formed in 1978 after the Indian government nationalized

the ailing Hindustan Tractors. It is one of the oldest tractors manufacturing

units in India and produces rugged, low-cost tractors. The company has its

own foundry and facilities for making auto components.

3. Mahindra Shubhlabh Services Ltd.

MSSL is a virtual marketplace where farmers and traders of agricultural

commodities can sell their produce, obtain finance, buy seeds and fertilizers,

rent farm equipment, and check the latest weather information. The site

provides constantly updated market information to enable procurement of

quality inputs at competitive prices.

37

Trade & Financial Services sector

Credit is the lifeblood of commerce, which in turn is the engine that drives

industry. The Mahindra Group helps keep the wheels of industry moving with its

presence in the trade and financial services sector through the following

companies.

1. Mahindra Intertrade Ltd.

Mahindra Intertrade is a wholly owned subsidiary of the Mahindra &

Mahindra group, one of the 10 largest industrial houses in India. MIL

undertakes imports, exports, third country business, domestic trading &

marketing & distribution activities.

Seeking to deliver a distinct value proposition through leveraging its skills &

competencies, Mahindra Intertrade handles a wide variety of products &

services. Starting with steel, Intertrade today handles Metals, Ferro Alloys,

Application Engineering products, Consumer Goods and Engineering goods.

The first to set up a Steel Service Centre in the organized sector to bring a

value beyond traditional intermediation - they now cover significant

relationships in Auto, Auto ancillaries, Home Appliances and Transformer

manufacturers. Machine Tools trading, now known as the Technical Business

Group provides a clearly differentiated value chain with installation, erection

& servicing of state of the art equipment. A key player in the Rubber & Tyre,

the group has also diversified into Non destructive testing equipment.

2. Mahindra Steel Service Centre Ltd.

MSSCL was incorporated in 1993 as a joint venture between M&M,

Mitsubishi and Nisho Iwai. A pioneer in the steel service centre business, it

supplies cut-to-length steel blanks and silt coils to the automobile and home-

appliances industries. The main plant has well-designed processing lines, such

as a feeder line, a slitting line, a shearing line and an electrical sheet slitting

line.

38

3. Mahindra & Mahindra Financial Services Ltd.

Incorporated in January 1991 by M&M with Kotak Mahindra Finance as a

promoter, MMFSL is in the business of finance, leasing and hire purchase.

The company lends monetary muscle to M&M's dealers and customers and to

other small businesses by extending short-term, lease and hire purchase

finance.

Information Technology sector

Information Technology constitutes one of the thrust areas of the Mahindra

Group. The group's foray into Information Technology goes back to 1986 when

the Flagship Company of the Sector, Mahindra British Telecom, was formed in

association with British Telecom. The group established other IT companies in the

90s and today they cater to entire IT services space from software engineering to

product based solutions. They aspire to become a leading provider of IT services

globally.

1. Mahindra British Telecom Ltd.

A joint venture between Mahindra & Mahindra and British Telecom, are a

leading software services company focused on the global Telecom industry.

MBT offers solutions and Systems integration services to Telecom operators,

Telecom equipment manufacturers and Telecom technology suppliers. MBT

utilizes its experience developed across various hardware and software

platforms to offer comprehensive software services.

2. Bristlecone

The Mahindra Group recently acquired a majority stake in US based IT

services and solutions company, Bristlecone Inc. and merged it with its

subsidiary Mahindra Consulting.

Bristlecone, a leading provider of extended supply chain solutions, and a

business and development partner of SAP, empowers Global 2000 companies

and SMBs alike to build scalable IT infrastructure and solutions that support

their value chain processes.

39

Bristlecone uses its deep knowledge of technology, industry domain and

business processes to facilitate and manage organizational change and deliver

lasting value.

3. Mahindra Logisoft Business Solutions Pvt. Ltd.

The company is a joint venture with TVS family that brings domain expertise

in automotive industry. With the acquisition of Information Services Division

of Mahindra Holidays & Resorts the company now also possesses domain

knowledge of hospitality industry. The company is focused on product based

solutions in automotive and hospitality verticals. Current product range

includes Autopower - a solution for automotive dealerships, HumanEdge

(HRMS) for human resource management, and ConnectEDGE - an interactive

GUI software tool, designed to address specific needs of achieving customer

care and relationship.

4. Mahindra Engineering Services

Mahindra Engineering Services, a division of Mahindra & Mahindra Ltd., is

set up to provide engineering services to global OEMs and automotive

supplier around the world. Our approach is to partner with our customers in

the area of product development by providing engineering services from a mix

of on-site, off-site, and off-shore services in the following areas- (a) Advanced

surfacing and reverse engineering (b) CAD (c) CAE (d) Rapid prototyping &

Tooling and parts, and (e) Validation. We are one of the few Asian full service

providers, with strong offshore engineering capabilities.

40

5. Mahindra Special Services Group

Mahindra Special Services Group (MSSG) helps organizations develop

customized Information Security strategies to derisk their businesses and to

protect their competitive advantage.

MSSG's service offering help to identify, mitigate and manage the risk

exposure of the organization irrespective of its industry and the nature of the

business. Our ability to look at Information Security from a 'people & process'

perspective rather than an IT centric approach has helped organizations to

protect their short and long term business strategies and objectives thus

preventing loss of hundreds and thousands of dollars every year.

Infrastructure Development sector

The 1990s saw India embrace liberalization and globalization, and infrastructure

development was the key to spurring domestic and foreign direct investments.

This generated employment, gave free reign to domestic entrepreneurial talent,

and accelerated the country's GDP growth to unprecedented levels.

The Mahindra Group is playing its part in driving the nation's infrastructure

development, with a host of companies operating in real estate, project

consultancy and design, engineering consultancy, the hospitality industry and

other core segments.

1. Mahindra Gesco Developers Ltd.

The Great Eastern Shipping Co Ltd. diversified into real estate activities with

the formulation of its property division in 1992 and over a period of time

spread its operations in Mumbai, Navi Mumbai, Gurgaon, Pune and

Bangalore.

The Property Division of The Great Eastern Shipping Co Ltd., subsequently

demerged from the parent Company in February 2000 to become an

independent entity as GESCO Corporation Ltd., with focus on its core

business activities of projects management services, business centers and

development of residential and commercial complexes.

41

2. Mahindra Acres Consulting Engineers Ltd.

Acres is one of the world's leading consulting engineering firms, with

expertise in planning, engineering and project management. It has provided

imaginative and cost-effective engineering solutions to clients throughout

North America and around the world for over seven decades. The company's

business lines encompass the power sector (hydroelectric, thermal, and

transmission and distribution), transportation (air, water and ground

transportation), and mining and heavy industries. Its services include planning,

design and project and environmental management in the civil, electrical,

mechanical, hydraulic and geo-technical disciplines. MACE leverages the

considerable technical and financial

resources of the Mahindra Group to stand tall in the country's consulting

engineering industry.

3. Mahindra Holidays & Resorts India Ltd.

Mahindra Holidays & Resorts India Ltd., a part of the Infrastructure Sector of

the Mahindra Group, brings to the industry values such as Reliability, Trust

and Customer Satisfaction. Started in 1996 the company today has a Customer

Base of over 15000 members and 7 beautiful Resorts at some of the exotic

spots in India, such as Goa, Munnar, Ooty, Manali, Kufri, Mussoorie and

Binsar.

4. Mahindra Industrial Park Ltd.

Mahindra Industrial Park Ltd. (MIPL) symbolizes the combined expertise of

three giants of Indian industry namely Mahindra & Mahindra, Infrastructure

Leasing & Financial Services (IL&FS) and Tamil Nadu Industries

Development Corporation (TIDCO).

MIPL is a special purpose vehicle formed to develop and promote Mahindra

City, India's first fully planned and integrated Business City in a private-public

partnership model. Located just 30 minutes from Chennai airport, Mahindra

City encompasses 1400 acres of infrastructure-ready space surrounded by

hills, lakes and a reserve forest.

42

5. Mahindra AshTech Ltd.

Mahindra AshTech Ltd. (MATL) is a wholly owned subsidiary of Mahindra &

Mahindra Ltd. It is in the business of turnkey contract execution for Ash

Handling Systems and Traveling Water Screens. MATL has a well-equipped

manufacturing facility in the heart of Mumbai city with Regional / Branch

offices at New Delhi & Calcutta. MATL entered in this business as Turner

Hoare Company Ltd. and subsequently was renamed as Mahindra Spicer Ltd.

by virtue of technical collaboration with Dana Spicer Corporation. MATL has

a track record of more than 100 major contracts. In 1984 "Mahindra Spicer

Ltd." merged, with parent Company and became a division known as "MSL

Division of Mahindra & Mahindra Ltd". In 1999 the business of MSL

Division was transferred, as a going concern, to Mahindra AshTech Ltd.

Automotive Components sector

This sector of the Mahindra Group has companies involved in the manufacture of

stampings, moulded components, propeller shafts and clutches. In addition to

catering to the group's flagship company, it supplies material to major OEMs such

as Telco, Ashok Leyland, Maruti Udyog and Bajaj Auto. The sector also exports

to the United States and to European markets.

1. Siro Plast Ltd.

Siro Plast manufactures engineered composites such as sheet-moulding

compounds and dough-moulding compounds. Its partnership with Menzolit

GmbH of Germany provides Siro Plast the latest technology in formulations,

manufacturing processes, application engineering, and mould design and

manufacturing. Depending on technological demands, materials and products

are made using different types of reinforcements, such as chopped glass

roving, chopped strand mats, continuous roving and synthetic fibres.

Siroplast's customer list includes big names from the automobile sector,

including M&M, Telco and Ashok Leyland. The company was registered in

1982, received technical know-how from Menzolit in 1986, installed its plant

and equipment in 1988, and started commercial production in 1989.

43

2. MUSCO

Musco is a leading producer of various categories of high quality

alloy steel in various sizes, shapes (such as rounds, squares, flats and

bars) as per specifications. The plant is located at Khopoli in Maharashtra and

has a capacity to despatch 96,000 MT of alloy steel per annum. MUSCO

produces through ingot and continuous casting routes. MUSCO's products

have a large demand from automobile, engineering and capital goods

industries.

3. Mahindra Engineering & Chemical Products Ltd.

MECP has two divisions, M-Seal Division is engaged in manufacturing and

marketing of products for Energy Sector and Engineering Division is a major

manufacturer of material handling equipment. M-Seal product range includes

Cable Jointing Kits and accessories, Electrical Insulating compounds and

Composite Fibre products. MECP is the pioneer to introduce cast resin joints

for cable joining and terminations. Responding to changing market needs with

technical innovations and new products, MECP has been maintaining lead

position in the market.

Engineering Division products include wide range of conveying equipment

and systems for Cement, Chemicals, Steel and allied Process industries.

44

III.CHAPTER

Review of literature

45

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:-

Effective inventory management requires an effective control system for

inventories. A proper inventory control not only helps in solving the acute problem of

liquidity but also increases profits and causes substantial reduction in the working

capital of the concern. The following are the tools and techniques of inventory

management and control;

Determination of stock levels.

Determination of safety stock levels.

Selecting a proper system of ordering for inventory.

Determination of economic order quantity (EOQ).

A.B.C analysis.

Classification and codification of inventories.

DETERMINATION OF STOCK LEVELS: -

Carrying of to much and too little of inventories is determinate to the firm. If

the inventory level is too little, the firm will face frequent stock-outs involving heavy

ordering cost and if the inventory level is too high it will be unnecessary tie-up of

capital. Therefore, an optimum level of inventory where costs are the minimum and at

46

the same time there Id. No. stock-out, which may result in loss of sale or stoppage of

production. Various stock levels are discussed as such

A) MINIMUM LEVEL:-

This represents the quantity which must be maintained in hands at all times. If

stock is less than the minimum level then the work will stop due to shortages of

materials. Following factors are taken into consideration while fixing minimum stock

level;

LEAD-TIME:

A purchasing firm requires some time to process the order and time is also

required by the supplying firm to execute the order. The time taken in processing the

order and then executing it is known as lead-time. It is essential to maintain some

inventory during this period.

RATE OF CONSUMPTION:-

It is the average consumption of materials in the factory. The rate of

consumption will be decided on the basis of past experience and production plans.

NATURE OF MATERIAL: -

The nature of materials also affects the minimum level. If a material is

required only against special orders of the consumers then minimum stock will not be

required for such materials minimum stock level can be calculated using the formula:

Minimum stock level=re-order level-(normal consumption x normal

re-order period).

47

B) RE-ORDER LEVEL:-

When the quantity of materials reaches at a certain figures then fresh

order is sent to get materials again. The order is sent before the materials reach

minimum stock level. Re-ordering level or ordering level is fixed between minimum

stock level and maximum stock level. The rate of consumption, number of days

required replenishing the stock, and maximum quantity of materials required on any

day is taken into account while fixing re-ordering level. Re-ordering level is fixed

with the following formula.

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

C) MAXIMUM LEVEL:-

It is the quantity of materials beyond which a firm should not exceed its stock.

If the quantity exceeds maximum level limit then it will be over-stocking. A firm

should avoid over-stocking because it will result in high material costs. Over-stocking

will more blocking of more working capital, more space for storing the materials,

more wastage of materials and more chances of losses from obsolescence. Maximum

stock level will depend upon following factors:

The maximum requirements of materials at any point of time.

The availability of space for storing the materials.

The rate of consumption of materials during lead-time.

The cost of maintaining the stores.

The possibility of fluctuations in prices.

Availability of materials. If the materials are available only during

seasons then they will have to be stored foe the rest of the period.

The possibility of change in fashions and production process will also

affect the maximum stock level.

48

The following formula may be used for calculating maximum stock

level;

Maximum stock level= re-order level + re-ordering quantity –

(minimum consumption X minimum re-ordering period).

D) DANGER LEVEL:-

It is the level beyond which materials should not fall in any case. If level arises

then immediately steps should be taken to replenish the stocks even if more cost is

incurred in arranging the materials. If materials are not arranged immediately then

there is a possibility of stoppage of work. Danger level is determined with the

formula:

Danger level= consumption X maximum re-order period for

emergency purchases.

E) AVERAGE STOCK LEVEL:-

The average stock level is calculated as such:

Average stock = minimum stock level +1/2 of re-order quantity.

49

DETERMINATION OF SAFETY STOCK:-

The safety stock is a buffer to meet unanticipated increase in usage. The usage of

inventory cannot be perfectly forecasted. It fluctuates over a period of time. The

demand for materials may fluctuate and delivery of inventory may also be delayed

and in such a situation the firm can face a problem of stock-out. The stock-out can

prove costly by affecting the smooth working of the concern. In order to protect

against out of usage fluctuations, firms usually some margin of safety stocks. The

basic problem is to determine the level of quantity of safety stocks. Two costs are

involved in determination of this stock. I.e., opportunity cost of stock outs and the

carrying costs. Thee stock-outs of raw materials cause production as the firm cannot

provide proper customer service. If a firm maintains low level safety stocks them

frequent stock-outs will occur resulting into the large opportunity costs. On the other

hand, the larger quantity of safety stocks involves higher carrying costs.

There are three prevalent systems of ordering and a concern may use

any one of these,

Fixed order quantity system generally known as economic as economic order

quantity (EOQ) system.

Fixed period order system of periodic re-ordering system or periodic review

system;

Single order and schedule part delivery system.

DETERMINATION OF ECONOMIC ORDER QUANTITY

(EOQ):-

A decision about how much to order has great significance in inventory

management. The quantity to be purchased neither should be neither small nor big

because costs of buying and carrying materials are very high. Economic order

quantity is the size of the lot to be purchase which is economically viable. This is the

quantity of materials, which can be purchased at minimum costs. Generally, economic

order quantity is the point at which inventory – carrying costs are order costs. In

determining economic order quantity it is assume that cost of managing inventory is

made up solely of two parts I, e. ordering cists and carrying costs

50

C = consumption of the material concern in units during a year or a particular period.

O = cost of placing one order including the cost of receiving the goods I.e. cost of

getting

An item into the firm stores.

I = interest payment including variable cost of storing per unit per year or particular

period.

A) ORDERING COSTS:-

These are the costs, which are associated with the purchasing or ordering of

materials. These costs include;

Costs of staff posted for ordering of goods. A purchase order is processed and

they placed with suppliers. The labor spent on this process is including in

ordering cost.

Expenses include on transportation of goods purchased.

Inspection costs of incoming materials.

B) CARRYING COST: -

These are the costs for holding the inventories. These costs will not be

incurred if inventoried are not carried. These costs include;

The cost of capital invested in inventories. An interest will be paid on the

amount of capital of capital locked-up in inventories.

Cost of storage, which could have been used of 4 other purchases.

51

The loss of materials due to determination and obsolescence. The materials

may deteriorate with passage of time. The loss of obsolescence arises when

the materials in stock are not usable because of change in process or product.

Insurance cost.

Cost of spoilage in handling of materials.

A-B-C ANALYSIS (ALWAYS BETTER CONTROL):-

It is one of the types of the inventory control in which the material are divided

into number of categories for adopting a selective approach for material control. It is

generally seen that in manufacturing concern, a small percentage of items contributed

a large percentage of value of consumption and a large percentage of times of material

contribute a small percentage of value. In between these two limits there are some

items, which have almost equal percentage of vale of materials.

Under A-B-C analysis the materials are divided into three categories viz., A, B

& C, and X, Y, Z where A, B, C represents the value of the material, where as X, Y, Z

represents the consumption of the materials.

TOOLS AND TECHINIQUES OF INVENTORY

MANAGEMENT, WHICH COMPANY IS ADOPTING: -

KAN BAN

52

JIT

MILK RUN CONCEPT

TWO BIN SYSTEM

1) KANBAN:-

A kanban is a card containing all the information required to be done on

product at each stage long its path to completion and which parts are needed at

subsequent process. These cards are used to control work-in-process (W.I.P),

production, and inventory flow. A KANBAN system allows a company to use just-in-

time (J.I.T) production and ordering systems which allow them to minimize their

inventories while still satisfying customer demands.

In M&M Company they used Kanban system for ‘c’ class items.

2) JUST IN TIME INVENTORY CONTROL:-

the just-in-time inventory control system, originally developed by taichi okno

of happen, simply implies that the firm should maintain a minimum level of inventory

and rely on suppliers to provide parts and components just in time to meet its

assembly requirements. This may be contrasted with the traditional inventory

management system, which calls for maintaining a healthy level of safety stock to

53

provide a reasonable protection against uncertainties of consumption and supply the

traditional system may be referred to as a “just-in-case” system.

The just in time inventory system, while conceptually very appealing, is difficult to

implement because it involves a significant change in the total production and

management system. It requires inter alias

(i) A strong and dependable relationship with suppliers who are

geographically not very remote from the manufacturing facility.

(ii) A reliable transportation system and

(iii) As easy physical access in the form of enough doors and conveniently

located docks and storage areas to dovetail incoming supplies.

.

under the just in time inventory system a concentrated effort is made to lower the

ordering cost (F in the above equation) and also the safety stock by forging stronger

long-term relationship with the supplier. As a result both the components on the right

hand side of the above equation declaim and this means that the average inventory

level as lower.

3) MILK RUN CONCEPT:-

The concept of the milk run is day to day purchasing. Here the buyer will

purchase the material according to the production, which is for the next one day.

The buyer will first know the safety and control stock and then he tells to the supplier

the estimated trigger value. In milk run concept only quality-certified stock will be

delivered. The purchaser should estimate the lead-time and it is compulsory so as to

have the control over lead-time. It is direct on-line system. There will be no inspection

so as to save time.

54

Advantages: -

Economical transportable lot(minimum transportation cost per piece)

No inventory carrying cost at plant and at warehouse.

It is direct online system

Quality certified stock will be delivered and so no inspection is required.

4) TWO BIN SYSTEMS (DUAL CARD SYSTEM): -

Two bin systems use a conveyance (withdrawal) kanban and a production

kanban. The conveyance kanban specifies the quantity of the part to be produced by

the preceding process, while a production kanban specifies the quantity of the product

to be with drawn by the subsequent process.

LAST IN FIRST OUT (LIFO):

LIFO method of pricing issues assume that the most recently purchased stocks

are used first therefore, the items remaining in stock at the end of the year are of

earlier purchases. This methods result in a higher amount of cost of goods and a lower

profit figure, during the items of rising prices.

The main advantages of using LIFO method are:

(a). A matching of current costs against current revenues is facilitated.

Cost of goods sold under this method represents the cost of recent purchases.

(b). This method is helps in saving in taxes when inflationary conditions

are present in the market. This is because most recent purchases are matched against

sales revenue.

FIRST IN FIRST OUT (FIFO):

55

This methods assumes that the oldest items in stock are issued or used first and the

items in stock are out of more recent purchases. Therefore, the issues priced in the

chronological order of receipt resulting in closing stock being valued at the latest

purchases price.

Advocates FIFO method argue that this method follows the conventional

practice that goods purchased first are sold first. Under conditions rising prices, FIFO

method requires that stock of earliest data and prices be demanded sold first, with the

result that the P/L account reflects a higher level of profit than would have been the

case if latest costs have been used. Closing stock is shown in the balance sheet at the

more recent acquisition prices.

CLASSIFICATION OF INVENTORIES: -

CLASSIFICATION:-

The materials are classified into 2 they are

1. ABC analysis

2. XYZ analysis

1) ABC ANALYSIS:-

We assume that a vehicle cost is 100 Rs. The 70% of items from ‘A’ class,

20% items from ‘B’ class and 10% items from ‘C’ class items

ABC analysis is value based

A - 70

B - 20

C - 10

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100 vehicle cost

For ‘A’ class items M&M Company use direct online (DOL).

They purchase ‘A’ items from local vendors.

Ex: - chases frame, wires.

A class parts are purchased daily

B class parts are purchased up to 4 days

C class parts are purchased up to 7 days or 10 days.

2) XYZ CLASSIFICATION: -

XYZ classification is consumption based.

X – RUNNER MODEL

Y – REAPETER MODEL

Z - STRANGER MODEL

AX – daily consumption.

AY – taken 2 to 3 days for consumption.

AZ - by taking as per order.

In M&M they maintain less stock, which are costly.

PAYMENT TERMS:-

They take the time for the payment of 32 to 64 days depending up on the

vendors.

57

CODIFICATION OF MATERIALS:-

The inventories of manufacturing concern may consist of raw materials; work

in process, finished goods. Spares, consumable stocks etc. all these categories may

have their sub-divisions, for proper recording and control of inventory, a proper

classification of various types of items is essential. The inventories should first be

classified and then code numbers should be assigned for their identification. The

identification of short names is useful for inventory management not only large

concerns but also for small concerns. Lack of proper classification may also lead to

reduce in production.

Guideline

Part I

Guidelines for deciding “Schedule Based” strategy of procurement for

schedule based the following conditions should get satisfied all together.

Vendor Response Time + Transit Time + Internal Lead Time is

less than one day

Part falls in AX, AZ & BZ category.

Part is quality certified.

Part II

After having decided it follow “Consumption Driven” strategy for

procurement, decide whether Fixed Time Variable Quantity (FTFQ) or Fixed

Quantity Variable Time (FQVT) or Fixed Quantity Fixed Time (FQFT) be made

applicable.

FQFT is useful in the case of parts where one vendor is supposed to get Fixed

Qty share by agreement irrespective of production volume. Suppose for a part X there

are two vendors A and B we have an official arrangement with vendor A whereby

what ever be total consumption level we are bound to pick up Fixed Quantity from

him then the Quantity from him then the Quantity and Time of the trigger with his

58

vendor could be standardized to have Fixed Quantity schedules at Fixed Time

Intervals. The increase and decrease in total consumption of the month is taken by the

other vendor with whom the scheduling arrangement has to be of Fixed Quantity and

Variable Time type.

Part III:-

For schedule driven

Work out stock quantity to cover for production requirement for one day

Vendor supplies day’s requirement in the morning by 10am.

At 10am communicate next two days production schedule.

Part IV:-

Fixed Time Variable quantity (FTVQ)

Fix up replenishment interval

Calculate Control Level by formula

CL= ADD (RI+VRTLT+ILT)*FACTORY OF SAFETY

To begin with take factor of safety as one

Decided upon the control level at which you are comfortable to work with the closing

stock level as in the simulation

Substitute acceptable control level in the formula to recalculate factor of safety

Part V: -

Fixed Quantity Variable time (FQVT)

Decide upon the Fixed Quantity shipping lot based on considerations like most

preferred load, most economically transportable lot etc,

Calculate RI as Fixed Qty/ADD

Calculate Control Level

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

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To being with take factor of safety as one.

Simulate for above CL.

Fix the CL through simulation.

Substitute in the formula to arrive at proper factor of safety.

One Bin, Two Bin System of replenishment are offshoots of FQVT system in

which case the Fixed Qty decided is isolated in a bin to trolley or pallet or specified

area from which it is issued to production and empty bin is taken as a trigger for

schedule purpose. Here total quantity in one bin in the case of one bin system or total

quantity in both the bins in the two bin system is taken as the control level.

Estimation of different costs: -

In the calculation of the ordering cost and also for other calculation purpose or

analyzing purpose, ‘I have considered ALL CLASSES ITEMS AND TO ALL

MODELS’, To calculate the various costs which are involved in the analysis of

inventory management as explained earlier.

TRANSPORTATION COST:-

These are the cost, which are incurred when the spare parts/materials are

procured from different places in M&M ltd, the spare parts are procured from the

places like Delhi, noida, Mumbai, pune, nashik and bang lore etc. and the cost is

incurred by procuring the spare parts form vendor’s place to the company I, e.

manufacturing unit.

There are different slab for the transportation cost procured from different places.

Two main important factors are considered in calculating transportation cost.

Distance between the company and vendors place.

Depending upon the weight of the spare part to be transported.

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Transportation cost is taken as maximum 2.5%. The basic price of the spare parts on

an average. It is calculated as the overall fright incurred during previous year divided

by purchases made. Here in M&M the transportation cost will be 6 crores pa

(app).

For Zaheerabad

CARRYING COST: -

These are the costs for holding the inventories. These costs will be depending

up on their classes. These costs will not be incurred if inventories are not carried.

Usually 4 days inventory are kept in stock for any ‘A’ category items. Hence the

carrying cost includes various costs and those are capital locked in the inventories,

storage cost, maintenance cost etc.

ESTIMATION OF STOCK LEVELS FOR CHAMPION:

NOTE:- HERE IAM CONSIDERING ONLY CHAMPION

MODELS.

There are different models used in the calculations of the stock levels. As

mentioned earlier the formula for the calculations of the stock levels, economic order

quantity, number of purchase orders placed in the month for different spare parts.

Reordering quantity - 2000units.

Reordering period – 2 to 3 weeks.

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Weekly usage: -

Maximum – 600 units.

Normal – 480 units.

Minimum – 390 units.

RE-ORDERING QUANTITY:

The quantity to order is called re-order quantity. There are many factors to be

considered to place an order for certain level at certain time. It depends upon the

present demand, future, and the coordination between the buyer and vendor etc.

The re-ordering quantity, which is generally followed, is that of ordering the

bin quantity. In M&M ltd. A system is followed in ordering and that is like 2-bin

system. After the consumption of 1-bin order is placed with the vendor for the

procurement of spares.

Hence reordering quantity is taken as the 1-bin quantity. This process of

ordering is not exact as per the schedule of the production is concerned because it

keeps on changing

Reordering quantity is 2000 units

Reordering period is 2-3weeks.

Reordering level = maximum consumption X maximum re-order period

600 x 3 = 1800 units.

MINIMUM STOCK LEVEL: -

NOTE: - For the calculated of the champion vehicles as 480. Hence the weekly

consumption of the parts id constants

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Ex: - consider “CHAMPION ENGINE” for calculation purpose.

Normal daily consumption = 480units.

Normal reorder period = 2.5weeks.

Reorder level = 1800 units.

Minimum stock level reorders level- (normal consumption x normal reorder

period)

1800-(480 x 2.5)

= 600 units.

The engine stocks should not go below 600 units. Otherwise there will be storage in

stocks of engine and the company can come across losses due to the storage.

MAXIMUM STOCK LEVEL:-

It is the level at which it is risk of storing the inventory and thus it is loss to the

company. If it exceeds this level.

It is calculated as:

Re-order level=1800 units.

Re-order quantity =2000 units.

Minimum consumption=390 units.

Minimum re-order period = 2 weeks.

Maximum stock level = re-order level + re-order quantity –(minimum

consumption X minimum re-order period).

=1800 + 2000 – (390 x 2)

=3020 units.

From this it is clear that the stock level of the engine should not exceed above 3020

units. It will be economical to maintain stock below 3020 units. Above this level the

company incurs relating sort the maintenance of stock, loss due to storage, storage

cost, insurance cost, etc.

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AVERAGE STOCK LEVEL: -

It is the company should maintain in order to reduce the various cost of inventory

management. At this level it is very economical for the company to maintain the

stocks at this level

It is calculated as:

Minimum stock level = 600units

Re-ordering quantity = 2000 units.

Average stock level = minimum stock level + ½ of re-ordering quantity.

=600 + (1/2 x 2000)

=1600 units.

SUPPLY CHAIN MANAGEMENT:-

A supply chain management is a network of facilities and distribution option

that performs the functions of procurement of materials, transformation of these

materials into intermediate and finished products, and the distribution of these

finished products to customers. Supply chains exist in both services and

manufacturing organizations, although the complexity if the chain vary greatly from

industry and firm to firm.

Below is an example of very simple supply chain for a single product, where

raw material is procured from vendors, transformed into finished goods in a single

step, and then transported to distribution centers, and ultimately, customers.

THE TYPICAL BENEFITS OF EXCELLENT SUPPLY:-

Reduction in total logistics costs as a percentage of revenue (material acquisition,

order management, inventory costs and finance/IT support).

Reduction in order-fulfillment leads time.

Reduction in inventory.

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Improvement in meeting commitment dates.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organization along the supply chain operated independently.

These organizations have their own objectives and these are often conflicting.

Marketing’s objective of high customer service and maximum sales collars conflict

with manufacturing and distribution goals. Many manufacturing operations are

designed to maximize throughput and lower costs with little consideration for the

impact on inventory levels and distribution capabilities. Purchasing contracts are often

negotiated with very little information beyond historical buying patterns.

The result of these factors is that there is not a single integrated plan for the

organization-there was as many plans as businesses. Clearly, there is a need for a

mechanism together supply chain management is a strategy through which such

integration can be achieved.

Supply chain management is typically viewed to lie between fully vertical

integrated firms, where the entire material flow is owned by a singe firm and those

where each channel member operates independently. Therefore coordination between

the various players in the chain is key in its effective management.

Supply chain management can be compared to a well-balanced and well-

practiced relay team. Such a team is more competitive when each player knows to be

positioned for the hand-off. The relationships are the strongest between players who

directly pass the baton, but the entire team needs to make a coordinated effort to win

the race.

Supply chain decisions

We classify the decisions for supply chain management into two broad

categories – strategic and operational. As the term implies, strategic decisions are

made typically over a longer time horizon. These are closely linked to the corporate

strategy (they sometime {\it are} the corporate strategy), and guide supply chain

policies from a decisions are short term and focus on activities over a day-to-day. The

efforts in these types of decisions Is to effectively and efficiently manage the products

flow in the “strategically” planned supply chain.

65

There are four major decision areas in supply chain management.

location

Production.

Inventory and.

Transportation.

And there are both strategic and operational elements in each of these decision areas.

1. LOCATION DECISIONS:-

The geographic placement of production facilities, stocking points and

sourcing points is the is the natural first step in creating a supply chain. The location

of facilities involves a commitment of resources to a long-term plan. Once the size,

number, and location of these are determined, so are the possible paths by which the

product flows through to the final customer.

These decisions are of great significance to a firm since they represent the basic

strategy for accessing customer markets, and will have a considerable impact on

revenue, cost, and level of service. These decisions should be determined by an

optimization routine that considers production costs, taxes, duties and duty drawback,

tariffs, local content, distributions costs, production limitations, etc. although location

decisions are primarily strategic, they also have implications on an operational level.

2. PRODUCTION DECISIONS:-

The strategic decisions include what products to produce, and which plants to

produce them in, allocation of plants, plants to DC’s, and DC’s to customer markets.

As before, these decisions have a big impact on the revenues, costs and customer

66

service levels of the firm. These decisions assume the existence of the facilities gut

determine the exact path(S) through which a product flows to and from these

facilities.

Another critical issue is the capacity of the manufacturing facilities and this

largely depends the degree of vertical integration within the firm. Operational

decisions focus on detailed production scheduling .these decisions includes the

construction of the master production schedules. Scheduling production on machines,

and equipment maintenance. Other considerations include workload balancing, and

quality control measures at a production facility.

3. INVENTORY DECISIONS:-

These refer to means by which inventories are managed .inventories exist at every

stage of the supply chain as either raw materials. Semi finished or finished goods.

They can also be in process between locations. Their primary purpose to buffer

against any uncertainty that might exist in the supply chain .since holding of

inventories can cost anywhere between 20 to 40 percent of their value. The efficient

management is critical in supply chain operations. It is strategic in the sense that top

management sets goals.

How ever, most researches have approached the management of inventory

from an operational perspective. These include deployment strategies (push versus

pull), control policies – the determination of the optimum levels of order points, and

setting safety stock levels, at each stocking location. These are critical since they are

primary determinants of customer service levels.

4. TRANSPORTATION DECISIONS:-

Therefore customer service levels, and geographic location play vital roles in

such decisions. Since transportation is more than 30% of the logistics costs. Operating

67

efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments

versus lot-for-lot). Routing and scheduling of equipment are key in effective

management of the firm’s transport strategy.

IV. CHAPTERData analysis &Interpretation

68

TABLE 3.1:

TOTAL PRODUCTION OF DURING THE YEAR -2005-2006, 2006-2007, 2007-

2008 TO END OF THE YEAR

MONTH/YEAR

MARCH-08

MARCH -07 MARCH -06

MODEL WISE ACTUAL ACTUAL ACTUAL

LOAD KING SR 4960 3604 2444

CABKING SR 32 44 124

CABKINGJR(SXJ) 917 690 575

VOYAGER

68 154 249

FJ 693 854 2707

TOURISTER/MOUKA 2172 2172 1428

MARSHAL 2114 485 0

TOTAL FOURWHEELER 10956 8003 7527

CHAMPION

(3 WHEELER) 23230 17794 10279

TOTAL 34186 25797 17806

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INTERPRETATION:

In the above table we can see that there is a tremendous increase in total

production of three, four wheeler which gave rise to the growth of inventory

maintenance from 2005-2006, 2006-2007,2007-2008.

TABLE 3.2:

TOTAL DISPATCH OF DURING THE YEAR -2005-2006, 2006-2007, 2007-2008

TO END OF THE YEAR

MONTH/YEAR MARCH -08 MARCH -07 MARCH -06

MODEL WISE ACTUAL ACTUAL ACTUAL

LOAD KING SR 4766 3589 2422

CABKING SR 32 44 127

CABKINGJR(SXJ) 861 682 585

VOYAGER 79 144 253

FJ 741 893 2791

TOURISTER/MOUKA 2043 2066 1422

MARSHAL 2126 470 0

TOTAL

FOURWHEELER 10648 7888 7600

CHAMPION

(3 WHEELER) 23118 17528 10273

TOTAL 33766 25416 17873

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INTERPRETATION:

In the above table we can see the total dispatch of three, four wheeler

which gives rise to the growth of inventory maintenance from 2005-2006,

2006-2007, 2007-2008.

TABLE 3.3:

THREE YEARS COMPARITIVE STATEMENT OF PRODUCTION

DISPATCH

FOR THREE WHEELER

SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH%

2005-2006 16,695 31.34% 12,952 24.16%

2006-2007 17,794 33.40%

17,528 32.70%

2007-2008 18,774 35.24%

23,120 43.13%

INTERPRETATION: There is a tremendous increase in production and

dispatch which in turn gave rise to growth of production and dispatch from

2005-2006,2006-2007,2007-2008.

PRODUCTION AND DISPATCH

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0

5,000

10,000

15,000

20,000

25,000

2005-2006

2006-2007

2007-2008

PRODUCTION

DISPATCH

TABLE 3.4: THREE YEARS COMPARITIVE STATEMENT OF PRODUCTION

ANDDISPATCH

FOR LIGHT COMMERCIAL VEHICLES

SEGMENT PRODUCTION GROWTH% DISPATCH GROWTH%

2005-2006 5,847 26.59% 6,220 28.34%

2006-2007 7,364 33.49% 7,284 33.19%

2007-2008 8,774 39.90% 8,441 38.46%

INTERPRETATION:Comparing the two years we can see a raise in

production and dispatch and a maximum growth of production and dispatch

mostly for light commercial vehicles.

PROUCTION AND DISPATCH FOR LIGHT

COMMERCIAL VEHICE

72

0

2,000

4,000

6,000

8,000

10,000

2005-2006

2006-2007

2007-2008

PRODUCTION

DISPATCH

TABLE 3.5: THREE YEARS COMPARITIVE STATEMENT OF PRODUCTION AND

DISPATCH

FOR UTILITY VEHICLES

SEGMENT PRODUCTION GROWTH

%

DISPATCH GROWTH%

2005-2006 2,470 33.17% 2,485 33.25%

2006-2007 2,485 33.37% 2,492 33.35%

2007-2008 2,490 33.44% 2,495 33.39%

INTERPRETATION:

There is a great demand in production dispatch for utility vehicles which

gave rise to maximum growth when Compared to other vehicles during 2005-

2006,2006-2007,2007-2008.

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PRODUCTION AND DISPATCH FOR UTILITY

VEHICLES

2,4552,4602,4652,4702,4752,4802,4852,4902,4952,500

2005-2006 2006-2007 2007-2008

PRODUCTION

DISPATCH

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TABLE 3.6:

CUMULATIVE PRODUCTION AND DISPATCH

SEGMENT PRODUCTION GROWTH DISPATCH GROWTH

2005-2006 19410 24.44% 19029 24.33%

2006-2007 25797 32.49% 25416 32.49%

2007-2208 34186 43.05% 33766 43.17%

INTERPRETATION:

There is an increase in total production and dispatch of Vehicles from the past three

years.

CUMULATIVE PRODUCTION AND DISPATCH

05000

10000150002000025000300003500040000

2005-2006 2006-2007 2007-2208

PRODUCTION

DISPATCH

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TABLE 3.7:

MAINTAINANCE OF INVENTORY FOR CHAMPION MODEL

STOCK LEVELS NO OF UNITS

REORDERING LEVEL 1800

MINIMUM LEVEL

600

MAXIMUM LEVEL

3020

AVERAGE LEVEL

1600

INTERPRETATION:

From the above table we can see that Mahindra & Mahindra will always

maintain a stock for champion according to these levels shown in the table.

TABLE 3.8:

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MODEL WISE PROCUREMENT OF INVENTORY IN A NO. OF DAYS

MODELS ASSEMBLING IN

MAHINDRA & MAHINDRA

TIME

INTERVAL

CHAMPION 8 DAYS

25 SEATER 10 DAYS

LOAD KING 24 DAYS

MAX AND MARSHAL 8 DAYS

TOURISTER(50 SEATER) 3 DAYS

INTERPRETATION:

From the table we can see that procurement of materials will be done

accorinding to the model wise and also for an definite inteval of no of days

and definitely we can say that JIT system can be implemented in Mahindra &

mahindra.

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TABLE 3.9:

IMPLEMENTATION OF A-B-C ANALYSIS:

INTERPRETATION:

From the above table we can se that Mahindra & Mahindra is using A-B-C

analysis and much preference is given to A class items and it is future

classified to X-Y-Z analysis and then Preference is given to B,C class items.

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V. CHAPTER

Findings&suggestions Conclusion

79

FINDINGS

For all the models assembled in Mahindra & Mahindra the reordering

quantity is followed by two bin system i.e. after the consumption of

one bin only the second bin order is placed.

The minimum stock level that Mahindra & Mahindra will store for

champion model is 600 units by calculation.

There is a risk and loss to the company if it exceeds a maximum

stock more than 3020units for champion model.

From the study we found that for champion auto the average stock

level is 1600 units on the basis of minimum stock and reordering

quantity.

From the past two years there is a tremendous increase of

production and dispatches which in turn gave rise to growth of all

models of Mahindra&Mahindra.

Management concentrates much while taking decisions in supply

chain as there is a problem in transportation due to location

disadvantage.

JIT system is being implemented in Mahindra&Mahindra as

consumption of materials for all models are procured for a definite

period of time.

While purchasing materials a definite codification is given to each

and every spare parts of vehicle for all models and it is maintained

with that particular code only.

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SUGGESTIONS

The process two bin system of reordering quantity must be taken exactly as

per the schedule of production as there may be changes due to increase in

demand and unforeseen conditions.

The minimum and maximum stock level should be accordingly to the

calculated units, otherwise there will be a risk of storing inventory and

thus it is a loss to the company.

The company should maintain the average stock level accordingly in order

to reduce the various costs of inventory management.

Investment of finance will be less if the stock is brought day-to-day. So the full

inventory has to be made direct online system on basis of milk run concept.

To keep materials cost under control so that they contribute in reducing

cost of production and over all costs.

Proper codification leads to maximum cost control.

Finally I suggest that Mahindra & Mahindra should continue in using the high

Japanese technology .

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CONCLUSION

Finally it is conclude that MAHINDRA & MAHINDRA plant, Zaheerabad

Inventory system is very good with high Japanese Techniques.

The stock levels are being constant in last three years.

Mahindra & Mahindra are maintaining average stock levels in order to reduce the

various inventory cost.

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Bibliography

83

BIBLIOGRAPHY

FINANCIAL MANAGEMENT - PRASANNA CHANDRA

COST ACCOUNTING - S. N. MAHESHWARI

COST ACCOUNTING - VARSHINI & SAXENA

Websites:

www.mahindra.com

www.mahindraautomotive.com

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