Santhosh (Inventory Mgt)1 L&T - Copy

PART - A

Chapter – 1

INDUSTRY PROFILE

History

Like every other industrial sector in India, the Indian Electrical/Electronics

Industry too is slowly emerging from out of its "protective cover". For far too long has

Indian Industry remained shackled and consequently inward looking. Over the past fifty

years there was no exposure to global players and competition, with the result that the

Industry grew up in a sheltered environment, dependent on the Government for

everything, from licenses to protection to tariffs. Each one of these interventions was

aimed at securing protection for oneself and ensuring growth of one’s own organization

at the cost of industry and the nation at large. Lack of global competition encouraged a

"cost plus" approach, where every conceivable cost increase was passed on to the

customer. There was thus no motivation to reduce costs.

With de-licensing, decontrol and deregulation, Indian Industry has suddenly

been exposed to global competition. Since last decade, India has witnessed what global

players have achieved and what they are capable of achieving.

Segments of Electrical and Electronics Industry

The global electrical and electronics industry centers around various adjunct

sectors. Few of them are Electronic Components, Computer & Office Equipments,

Telecommunications, Consumer Electronics as well as Industrial Electronics.

Electronic Components Industry

This particular industry is engaged in designing, manufacturing, marketing, supporting,

selling and distributing of broad range of electronic components such as bolts, clamps,

KARAVALI INSTITUTE OF TECHNOLOGY1

fasteners, lighting, semi conductors, integrated circuits, microprocessors, cables and

wires, switches, sensors, keyboards, sockets, sonar devices, test and inspection

equipment etc. Worldwide market leaders electronic components are United States of

America, European, Asian countries like Japan, China, India, Taiwan, and Hong Kong.

Indian electrical industry has grown because of government's thrust on it and

also due to overall economic growth. It has also reached a stage where the industry has

demonstrated its capabilities. The industry has seen a growth of 20% and should

continue at the same level for the next few years.

An electric meter or energy meter is a device that measures the amount of

electrical energy consumed by a residence, business, or an electrically-powered device.

Electric meters are typically calibrated in billing units, the most common one being the

kilowatt hour. Periodic readings of electric meters establishes billing cycles and energy

used during a cycle.

Factors Governing the Growth of this Industry. Every industry thrives on some

supporting factors. In this connection, there are few factors governing the growth of

electrical and electronics industry:

Research & development plays an important role to the increased productivity

and higher-value added electrical and electronics products.

Foreign investments accelerates growth in production and export as well. To

expand their business, foreign companies have done huge investment which lead

to establishing production units in developing countries.

Global industries like Medical, Telecommunications, Industrial & Automotive

industries have been cordially supported by electrical & electronics industry.


http://en.wikipedia.org/wiki/Kilowatt_hour

http://en.wikipedia.org/wiki/Business

http://en.wikipedia.org/wiki/House

http://en.wikipedia.org/wiki/Energy

http://en.wikipedia.org/wiki/Electricity

Increase in income changed living standards of the common mass. As a result, it

increased the demand of electronics especially consumer electronics products

globally.

Electric & Electrical industry is highly fragmented which comprises of many

small and medium size enterprises resulting into a huge industry.

Asia Pacific region is emerging as the most spinning place for the consumer

electronics industry, as the markets remain still encroached.

Innovation has played importance in this industry. It led to a consistent demand

for newer and faster products and applications

The global medical industry is one of the world's fastest growing industries,

absorbing over 10% of gross domestic product of most developed nations. It constitutes

of broad services offered by various hospitals, physicians, nursing homes, diagnostic

laboratories, pharmacies and ably supported by drugs, pharmaceuticals, chemicals,

medical equipment, manufacturers and suppliers.

The medical and health care industry provides enormous employment opportunities to

choose from. Apart from using the services of medical professionals, this industry also

utilizes the expert services of public policy workers, medical writers, clinical research

lab workers, IT professionals, sales/marketing professionals and health insurance

providers.


Chapter – 2

COMPANY PROFILE

LARSEN & TOUBRO LIMITED

HISTORY

The evolution of L&T into the country’s largest engineering and construction

organizations is among the more remarkable success stories in Indian industry.

L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers,

Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly

committed to developing India's engineering capabilities to meet the demands of

industry.

Henning Holck-Larsen Soren Kristian Toubro (4.7.1907 - 27.7.2003) (27.02.1906 - 4.3.1982)

Beginning with the import of machinery from Europe, L&T rapidly took on

engineering and construction assignments of increasing sophistication. Today, the

company sets global engineering benchmarks in terms of scale, complexity and quality.


Larsen & Toubro Limited is the biggest legacy of two Danish Engineers, who

built a world-class organization that is professionally managed and a leader in India's

engineering and construction industry. It was the business of cement that brought the

young Mr.Henning Holck-Larsen and Mr.S.K. Toubro into India. They arrived on

Indian shores as representatives of the Danish engineering firm F L Smidth & Co in

connection with the merger of cement companies that later grouped into the Associated

Cement Companies.

By 1964, L&T had widened its capabilities to include some of the best technologies in

the world. In the decade that followed, the company grew rapidly, and by 1973 had

become one of the Top-25 Indian companies. In 1976, Holck-Larsen was awarded the

Magsaysay Award for International Understanding in recognition of his contribution to

India's industrial development. He retired as Chairman in 1978. In the decades that

followed, the company grew into an engineering major under the guidance of leaders

like N. M. Desai, U. V. Rao, S. D. Kulkarni and A. M. Naik. Today, L&T is one of

India's biggest and best known industrial organisations with a reputation for

technological excellence, high quality of products and services, and strong customer

orientation. It is also taking steps to grow its international presence.

L&T has an international presence, with a global spread of offices. A thrust on

international business over the last few years has seen overseas earnings growing to 18

per cent of total revenue. With factories and offices located around the country, further

supplemented by a wide marketing and distribution network, L&T’s image and equity

extends to virtually every district of India.


L&T believes that progress must be achieved in harmony with the environment. A

commitment to community welfare and environmental protection are an integral part of

the corporate vision.

A) BACKGROUNDS AND INCEPTION OF THE COMPANY

Larsen and toubro Limited is the magic power of two Danish Engineers, whose

vision and foresight brought about the revolutionary professionally managed and a

pioneer in India’s engineering and construction industry.

Larsen & Toubro is a USD 8.5 billion technology, engineering and construction

group, with global operations. It is one of the largest and most respected companies in

India’s private sector.

A strong, customer-focused approach and the constant quest for top-class quality have

enabled L&T to attain and sustain leadership in its major lines of business over seven

decades.

Milestone

1938: Hemming Holck Larsen and Soren K. toubro set up partnership in a small office

in down town Mumbai. They marketed Danish Dairy equipments.

1939: When World War II broke out the Hedging Company genius for innovation

came to the fore. It began to make the products it used to import.


1945: L & T was appointed dealers of caterpillar the American earth moving

machinery giants.

1946: The firm became a limited company and soon a nation wide network of offices

was set up.

1966: L&T steadily climbed the list of 25 companies during 1973 to 72 companies.

1986: The Company commissioned a new factory in Hebbal industrial estate near

Mysore in Karnataka for manufacturing of computer peripherals such dot matrix

Printer and floppy disc drive.

1989: A new project was commissioned at Mysore in Karnataka for the manufacture of

medical electronics products.

2000: L & T announced a strategic partnership with SAP India.

2009: L&T’s Joint Venture company (L&T Oman) has secured US $ 20 million (INR

96 crore) order from Oman Electricity & Transmission Company (OETC) for

construction of one 132/33 kV GIS Substation at Nakhal Area, Oman.

B) NATURE OF BUSINESS

Electrical and Electronics Division (EBG) is one of the divisions of Larsen &

Toubro Limited at Mysore. This division is engaged in the manufacturing of switchgear

products, metering and protection systems and medical equipments.

L&T follows best manufacturing practice and meet international regulatory and

safety requirements. Some of the good manufacturing practice being followed is six

sigma tools, lean manufacturing and value engineering.

L&T promote sustainability development within the organisation and the

community through good ethical business practice.

Electrical & Electronics Division (EBG) is one of the core businesses of Larsen &

Toubro Limited (L&T) - India’s largest engineering and construction conglomerate.


The division has operations at different locations in India (two in Mumbai and

one each in Ahmednagar, Mysore and Coimbatore) and one unit for manufacturing

operations in China. Another manufacturing facility in Saudi Arabia.

C) VISION, MISSION AND QUALITY POLICY

Vision

L & T shall be a professionally managed Indian multinational, committed to total

customer’s satisfaction and enhancing shareholders value.

L & T ites shall be an innovative entrepreneurial and empowered team

constantly creating value and attaining global benchmarks.

L & T ites foster a culture of caring trust and continuous learning while meeting

expectations of employee’s state holders and society.

Mission

Mission statement of L & T is as follows “We shall be a world class company

dedicated to excellence and professionalism customers delight through total quality and

service shall be our guiding force. We shall foster a spirit of entrepreneurial leadership

and be a vibrant learning organisation.

L & T ites shall be an inspired team empowered by a culture of trust and caring

which serves all stakeholders. We shall be committed to community service and

environmental protection”.

Quality Policy

1 Deliver products and service meeting or exceeding customer requirements and

expectation while improving value of stakeholders.


Retain leadership position in domestic market and increase our global L&T

medical equipment with a turnover of Rs. 150 crores is deemed as the giant in the

domestic market posing a serious threat to the MNC’s, it command market share

ranging from 25% to 35% in diagnostic ultrasound, patient monitoring and surgical

diathermy product range.

D) Products / Services Profile

EBG has a comprehensive quality, environment and safety management system. The

quality management system for design & development, production, sales, marketing

and servicing has received ISO 9001:2000 certification from BVQI. In addition, its

manufacturing facilities have been certified for conformity to ISO 14001

(Environmental Management System) and OHSAS 18001 (Occupational Health and

Safety Management System) by BVQI.

The division has implemented Enterprise Resource Planning (ERP) solution of SAP

AG, Germany and it went live at 35 locations across the country simultaneously in the

‘Big Bang’ mode in 1999.

Switchgear Products:

Larsen & Toubro Limited is among the major manufacturers of low voltage switchgear

in the World, with the scale, sophistication and range to meet global benchmarks. In

addition to its leadership position in the Indian market established over a decade, L&T

has a growing presence in international market.

Electrical & Electronics:


L&T is a major international manufacturer of a wide range of electrical and electronic

products and systems. In the electrical segment, the Company is India’s largest

manufacturer of low tension switchgear, and is rapidly establishing itself in

international markets. Its products are widely sold in markets in Europe and Australia.

L&T also manufactures custom-engineered switchboards for industrial sectors like

power, refineries, petrochemical, cement, etc. In the electronic segment, L&T offers a

wide range of meters and provides complete control and automation systems for diverse

industries. Medical equipment and systems manufactured by L&T include advanced

ultrasound scanners and patient monitoring systems.

Metering Solutions & Relays

L&T is India's leading manufacturer of high quality electronic energy meters and

protection relays. It is the market leader in electronic programmable Trivector Meters

that are critical for all industrial and power utilities. From the industrial segment, the

metering solutions extend to the domestic energy metering, with the availability of

static Single Phase and Three Phase energy meters.

L&T's manufacturing facility in Mysore has high class testing facilities with NABL

accreditation. L&T meters are high on quality, value for money products that meet the

needs of different customers like electrical utilities, industries and commercial

establishments including domestic consumers. These meters work in extreme climates.

In the international market, L&T meters have been exported to various countries across

South East Asia, Middle East and Africa. L&T is now making a foray into the European

market.


L&T offers total solutions for protection in all the three segments of power systems -

generation, transmission and distribution. Designed and developed by in-house R&D,

the range includes electronic trivector meters (TVM), single and three-phase energy

meters, ABT meters intelligent panel meters, demand controllers, smart card prepaid

meters & GSM Modem.

Meters

Relays

Medical Equipment & Systems

L&T's medical equipment and systems, better known as 'L&T Medical', pioneered the

indigenous manufacture of medical equipment in India in 1987. Its range of product

include patient monitors, ECG machines, syringe pumps, anesthesia delivery systems

and ventilators, defibrillators and cardiac resuscitation systems, ultrasound and colour

Doppler’s, x-ray and C-Arm image intensifiers, hospital turnkey projects, telemedicine

solutions and specialty ambulances.

L&T Medical's products have various certifications/approvals, including IEC 60601-1,

CE (G MED, France), CMDCAS (Underwriter Laboratories) for export to Canada and


http://192.168.172.3/mps/er300p.html

MICROPROCESSOR BASEDENCORE

SFDA for export to China. It has secured USA FDA for some of its products. The

product designs incorporate embedded systems software from L&T's CMMI Level 5

certified embedded systems group.


X – RAY & C RAMC VISSION VISSION 300/ 500



ECG MACHINE

VELA

Petroleum Dispensers & Systems

L&T commenced manufacturing petroleum-dispensing pumps in the early sixties. Since

then, it has a series of firsts to its credit. L&T designed, developed and launched India’s

first electronic dispenser in 1984. To enhance the aesthetic appeal of the dispensing unit

as well as the fuel pump outlets, it introduced the unique ‘Z-line’ dispenser series in

1988 and later in 1996, launched the pre-set dispensers, manufactured for the first time

in the country.

L&T launched the oil pre-mix dispensers in 1998 and a year later, introduced the multi-

product dispensers. Its yet another first in the country was the introduction of QUAD

dispensers and communication and printers in dispensers.

L&T continues to develop world-class products and has recently launched SPRINT

series of dispensing pumps with elegant appearance and in-built communication

features like printer, card reader, touch screen as well as electronic calibration and

hydraulics with better air separator for more accuracy

Information Technology:

Larsen & Toubro InfoTech Limited, a 100 per cent subsidiary of L&T, offers

comprehensive, end-to-end software solutions and services with a focus

on Manufacturing, BFSI and Communications & Embedded Systems. It provides a

cost cutting partnership in the realm of offshore outsourcing, application integration and

package implementation.

Leveraging the heritage and domain expertise of the parent company, its services

encompass a broad technology spectrum, catering to leading international companies

across the globe. It leverages the L&T parentage to also provide services in the

embedded intelligence and e-Engineering space.


E) AREA OF OPERATION – GLOBAL / NATIONAL / REGIONAL

Operating Divisions:Engineering & Construction Projects (E&C)Heavy Engineering (HED)Engineering Construction & Contracts (ECC)Machinery & Industrial Products (MIPD)Information Technology & Engineering ServicesElectrical & Electronics (EBG)

SUBSIDIARIES AND ASSOCIATE COMPANIES.

L&T InfoTech

L&T InfoTech focuses on information technology and software services. Its clients

include industry leaders like Marsh & McLennan, Standard Life, Chevron, Free scale,

Hitachi, Sanyo , Lafarge , ABSA , Citi-Group, Barclays , e-CORPUS, Marathon and

Qualcomm among others. It offers services and solutions for the following industries:

banking and financial services, insurance, energy and petrochemicals, manufacturing,

and engineering services.

L&T EmSyS

EmSyS works in the domains of embedded systems and software. It offers services

related to hardware and software / firmware development in diverse verticals. EmSyS

Quality Management System has been benchmarked at CMMI - DEV + IPPD, Ver 1.2,

Maturity Level 5. It offers the services in following industries : automotive electronics,

consumer electronics, control automation, industrial systems, medical electronics,

avionics and railway signaling.

L&T Finance Limited

L&T Finance is focused on financial services.


http://en.wikipedia.org/wiki/Financial_services

http://en.wikipedia.org/wiki/Railway_signalling

http://en.wikipedia.org/wiki/Avionics

http://en.wikipedia.org/wiki/Medical_electronics

http://en.wikipedia.org/wiki/Industrial_engineering

http://en.wikipedia.org/wiki/Automation

http://en.wikipedia.org/wiki/Consumer_electronics

http://en.wikipedia.org/wiki/Automotive_electronics

http://en.wikipedia.org/wiki/Embedded_systems

http://en.wikipedia.org/wiki/Qualcomm

http://en.wikipedia.org/wiki/Marathon

http://en.wikipedia.org/w/index.php?title=ECORPUS&action=edit&redlink=1

http://en.wikipedia.org/wiki/Barclays

http://en.wikipedia.org/wiki/CitiGroup

http://en.wikipedia.org/wiki/ABSA

http://en.wikipedia.org/wiki/Lafarge

http://en.wikipedia.org/wiki/Sanyo

http://en.wikipedia.org/wiki/Hitachi

http://en.wikipedia.org/wiki/Freescale

http://en.wikipedia.org/wiki/Chevron_Corporation

http://en.wikipedia.org/wiki/Standard_Life

http://en.wikipedia.org/wiki/Marsh_%26_McLennan

http://en.wikipedia.org/wiki/Information_technology

Larsen & Toubro Infrastructure Finance

Larsen and Toubro Infrastructure Finance Company Limited was set up as a 100%

subsidiary of L&T. It commenced its business in January 2007 upon obtaining Non-

banking financial company (NBFC) license from the Reserve Bank of India (RBI).

As of March 31, 2008, L&T Infrastructure Finance has approved financing of more

than a billion USD to select projects in the infrastructure sector.

Larsen & Toubro e-Engineering Solutions

A subsidiary focusing on providing engineering solutions using PLM technology. It

provides engineering services. Operates from off-shore engineering centers at

Vadodara, Chennai and Bangalore with onsite teams to cater to engineering

requirements of global clients, many of them Fortune 500 companies across the globe.

Larsen & Toubro Valves Business Group

L&T’s Valves Business Group markets valves manufactured by joint ventures, Audco

India Limited, India and Larsen & Toubro (Jiangsu) Valve Company Limited, China, as

well as allied products from major international manufacturers.

L&T sells value-added flow control solutions to oil & gas, refining, petrochemical,

chemical and power industries. L&T is a leading global supplier of industrial valves

and customised solutions for major Refinery, LNG, GTL, Petrochemical and Power

projects.

L&T Valves Business Group has offices in the USA, India and China, and strategic

alliances with leading integrated valve distributors and agents in the major markets.

Toubro Qatar LLC


http://en.wikipedia.org/wiki/Solution

http://en.wikipedia.org/wiki/Bangalore

http://en.wikipedia.org/wiki/Chennai

http://en.wikipedia.org/wiki/Vadodara

http://en.wikipedia.org/wiki/PLM

http://en.wikipedia.org/wiki/Reserve_Bank_of_India

http://en.wikipedia.org/wiki/Non-banking_financial_company

http://en.wikipedia.org/wiki/Non-banking_financial_company

http://en.wikipedia.org/wiki/Larsen_and_Toubro_Infrastructure_Finance_Company_Limited

Toubro Qatar LLC is a JV between L&T India (49%) and AL Jazeera International

Trading WLL (51%), one of the leading company in Qatar.

LTQ was set up in 2004 at Qatar to take advantage of opportunities in the construction

industry there. The Company offers turnkey solutions in specialized fields of buildings

& factories, roads, bridges, airport, transmission lines, industrial electrification,

petroleum & petrochemical projects, fertilizer plants, pipelines, water, sewerage and

drainage system.

International Seaports Pvt. Limited

International Seaports Pvt. Limited is incorporated by L&T in Singapore with Precious

Shipping Public Company Limited (Bangkok) and SSA Asia Inc. (USA). It provides an

integrated set of services with committed involvement of design, develop, build and

operate seaport terminals in South Asia and South East Asia. It has formed a wholly

owned subsidiary in India, International Seaports (India) Pvt. Ltd.

Voith Paper Technology (India) Limited

Voith Paper Technology (India) Limited has been set up to manufacture equipment for

and provide consultancy services to the paper and pulp industry.

L&T - HCC Jharkhand Road Project JV

L&T - HCC Jharkhand Road Project JV: This Joint Venture was formed by Larsen &

Toubro Limited and Hindustan Construction Co. Ltd. to execute the 80km four lane

concrete road with rigid pavement in Jharkhand.

L&T is the leader of this JV and holds 60% share while HCC holds 40% shares.

Narmada Infrastructure Construction Enterprise Limited (NICE)


Narmada Infrastructure Construction Enterprise Limited (NICE) is an SPV formed for

design, construction and maintenance of the Second Narmada Bridge at Zadeshwar in

Gujarat

Second Vivekananda Bridge Tollway Group

Second Vivekananda Bridge Tollway Group is an SPV formed with AIDC (Asia

Infrastructure Development Corporation) to develop “Second Vivekananda Bridge

Tollway Group”.

Bangalore International Airport Limited

Bangalore International Airport Limited is a JV company formed for developing an

international class airport at Bangalore. Karnataka State Industrial & Investment

Development Corporation (KSIIDC), Airports Authority of India (AAI), Unique

(Zurich Airport) of Switzerland and Siemens, Germany are the partners.

L&T Infocity Limited

L&T Infocity Limited, a joint venture with Andhra Pradesh Industrial Infrastructure

Corporation Limited (APIIC), is developing the intelligent techno township, HITEC

City, in Hyderabad.

Cyber Park Development & Construction Company (CPDCL)

Cyber Park Development & Construction Company (CPDCL) is a special purpose

vehicle formed with Software Technology Parks of India (STPI) to develop "Cyber

Park" - a 4,90,000 sq.ft IT Park in Bangalore.

Vizag Industrial Water Supply Company Limited (VIWSCO)

Vizag Industrial Water Supply Company Limited (VIWSCO): The project involves

augmentation of water supply to Yeluru Left Bank Canal (YLBC) for which a pipeline


from river Godavari at Rajahmundhry is made with regular maintenance along with

phased rehabilitation of the YLBC. The Govt. of Andhra Pradesh embarked upon this

project on privatization route to spur the entire Industrial development of

Visakhapatnam.

TECHNOLOGY USED

The company has implemented various information technologies like SAP

(system application product) and EMSYS (embedded system software). SAP is a

technology, with the help of which the work burden of the employees is reduced up to

50%. The competition of the work becomes faster and more accurate. SAP is applied in

various departments like excise, financial and costing material management, and

production planning quality management and sales and distribution The Company has

got its own EMSYS where it develops its own hardware and software for its product

and its development. The Company provides different working environment for various

factors.

F) OWNERSHIP PATTERN

Shareholders are the owners of the company. The L & T group has around share

at Rs 2 per share. Number of shares held with public.


Board of Directors

L & T Board of directors comprises a chairman and managing director, 6 whole

time directors and 8 independent external directors. The external directors are respected

professionals in the area of business strategy financial law and public policy.

The share held by directors is 1525714 and their percentage of paid up capital is

1.10. The share held with director’s relatives is 787.

L&T share are listed in both BSE (Bombay stock exchange) and NSE (national

stock exchange). The global depository receipts are listed on Luxembourg stock

exchange.

G) COMPETITORS INFORMATION

The Major competitors of L & T medical equipments are Siemens, GE, and

Philips.

KARAVALI INSTITUTE OF TECHNOLOGY

Name of the Share HoldersPercentage of

Share

LIC 31.76

L & T employee welfare foundation 26.74

UTI 18.07

Promoter 6.98

General Insurance corporation of India 5.66

J.P Morgon flemming Asset management Europe (S.A) 4.24

New India Assurance Co Ltd 4.48

Oppenhermers fund Co. Ltd 2.1

21

Siemens

Siemens is 2nd oldest company it is becoming a global player today it represents

190 countries all over the world. The company ranges from various equipments to

networked hospitals.

Siemens medical solution bring together innovative imaging equipments,

information technology management Consulting and service to help customers achieve

tangible sustainable clinical and financial out comes.

Siemens enjoy 40% of market share. As it is the 2nd oldest company.

Philips

Philips globally makes bulk for its medical equipment at Netherlands, Germany,

Finland, Isaac1 China and the U.S. the proposed facility in India will act as the hub for

the Indian sub continent.

The company claims a global Market Leader for patients monitoring system and

the worlds, second largest manufacturer’s medical diagnostic equipment Philips claims

to be the world’s second largest suppliers of PACSGE.

GE

GE health care is a 15 $ billion units of general electric company worldwide. GE

health’s care employees more than 43000 people committed to serving health care.

GE health care provides transformational medical technologies and service that

is shaping a new age of patient care, through broad range of products, service and

expertise in medical imaging and information technologies, medical diagnostics patient

monitoring systems. The company posse’s high quality products with new technologies

implemented which makes the company to stand in a unique position.


H) INFRASTRUCTURAL FACILITY

Medical Service

For emergencies the ambulance room are provided to employees who have the

entire medicine medical and a full time nurse in attendance.

Canteen Facilities

The company has a canteen functioning, from where the employees could have

break fast, lunch and dinner. Apart from these they can get coffee/ tea at a reasonable

price.

Sports Facility

The process of developing a sports complex, currently the company has a good

cricket ground, two badminton courts and four TT tables. Competitions are kept on

time-to-time basis. Well-equipped Gymnasium with state of the art equipments where

in people can work out and be relaxed.

Library

The company provides a lending library stocked with essential management and

other books. To avail the facility the employee has to become the member by filling the

membership form.


Communication

The communication channel that is in place is via electronic mail and Internet

facility. The in-house mails can be sent through the pigeon holes kept at various points

with in the buildings. E-mail id’s will be provided to employees based on the profile

and requirements. The company has Novell GroupWise as their e-mail network.

Transportation

Transportation is provided to and from major points throughout the city

for both day and night shifts. The details of the stop are provided to employees in the

intranet. The registration is done once the pay sheet number is allotted.

Conference Hall

Company provides three conference halls in the campus. The hall is equipped

with air conditioner with the timer fixed to it.

I) ACHIEVEMENT / AWARD

L&T is The Best Company to Work for in the Manufacturing Sector – Business Today 2009-10

L&T Wins Business Standard ‘Company of the Year’ Award. 2009-10 L&T-Chiyoda bags ICWAI Award for Excellence in Cost Management L&T Wins Golden Peacock Award for Corporate Social Responsibility L&T bags Achievement Award from FinanceAsia SGCCI Golden Jubilee Memorial Trust Award - for outstanding performance in

Export of Engineering Goods for 2004-05. This Award highlights L&T's export of high-tech, custom-built equipment worldwide.

Greentech Safety Awards (2005) - by the New Delhi-based non-profit organisation, Greentech Foundation, for the effort in industrial safety and environmental management.


http://en.wikipedia.org/wiki/New_Delhi

http://en.wikipedia.org/wiki/2005

Ethics is Good Business award - from the New Delhi based PHD Chamber of Commerce & Industry (PHDCCI).

Businessworld's survey on "India's Most Respected Companies", ranked L&T first in infrastructure sector.

L&T was ranked first in "India's Best Managed Companies" in a 2008 survey published by Business Today, India's leading business periodical.

Golden Peacock Award in the 'Innovative Product/Service category' 'Ethics is Good Business' award 44th Annual Awards Competition organized by the Association of

Business Communicators of India (ABCI) India Manufacturing Excellence Awards Lifetime Achievement Excellence Award for Best Corporate Man of the

Decade Mr. A. M. Naik receives Padma Bhushan from the President of India CII honours L&T with Corporate Wellness Award L&T wins D&B-Rolta Top Indian Company Award L&T bags FICCI Award for Outstanding Corporate Vision

WORK-FLOW MODEL

The flow of the work in the organization is customer-to-customer approach. The

Fig. 2.1 shows work flow model


CustomerRequirement

Design New product Design team

QualityAssurance

Design Production

PurchasePrototype sample

Manufacturing cycle

Marketing Demandplacing

ShortageList

Procurement

Demand Production

Assembly

FinalAssembly

Subcontracting

Finishedstores

QualityControl

Issue Stores

Customers

http://en.wikipedia.org/wiki/Business_Today

http://en.wikipedia.org/wiki/2008

http://en.wikipedia.org/wiki/Infrastructure

http://en.wikipedia.org/wiki/Businessworld

K) Future growth and prospects

Unlike several of its peers, L&T is continuously developing new skill sets /

entering new segments and geographies. We believe that its entry into new areas like

power equipment, nuclear power plants, defense, shipbuilding, power development

projects, and forgings (thermal and nuclear), increased presence in the Middle East, and

its ability to take new PPP projects (due to strong balance sheet) will help L&T to

ensure long-term sustainability of order flow. Further, some of these business segments

could contribute meaningfully to consolidated revenues and profitability, going

forward.

Certain business segments like nuclear power plants, shipbuilding and defence have

witnessed strong support and initial action from the government. The first few orders

could be received over the next 12-18 months. In the nuclear segment, L&T has tied up

with global nuclear equipment suppliers to cater to India’s planned addition of 16GW

of nuclear power by 2020. This will entail investments of Rs1,600b over the next 8-10

years and the ordering of these projects is expected from FY11.

L&T has presence in financial services (L&T Finance/Infra Finance) and IT/ITES

(L&T Infotech). In the last 2-3 years, these businesses have attained critical scale. With

L&T’s plan to grow these businesses plus manufacturing to 40% of group revenues by

FY14, we see substantial organic and inorganic scaling up of these two verticals in 2-3

years.

L&T has also forayed into thermal and hydro power project development, and currently

has a portfolio of 1.32GW of thermal power and 728MW of hydro power under

development. The management has through various media articles stated its intent of

setting up ~5GW of power capacity as developer by 2015. Mr Ravi Uppal had in the

recent past been appointed as Managing Director and Chief Executive Officer of L&T


Power (Mr Uppal was previously the head of Global Markets and a Member of the

Group Executive Committee of the ABB Group).


Chapter – 3

Mckensy’s 7 Frame work

McKinsey & Co's 7S framework provides a useful framework for analysing the

strand weaknesses an organization. The McKinsey Consulting Firm identified strategy

as only one of seven elements exhibited by the best managed companies.

The 7S model can be used in a wide variety of situations where an alignment

perspective is useful, for example..

Improve the performance of a company.

Examine the likely effects of future changes within a company.

Align departments and processes during a merger or acquisition.

Determine how best to implement a proposed strategy.

The Seven Elements


http://1.bp.blogspot.com/_dJht1pSv7ks/SjlOwB9ZQ5I/AAAAAAAAERY/qPV_1MJtdtk/s1600-h/McKinsey7-S.gif

The McKinsey 7S model involves seven interdependent factors which are categorized as either

“hard” or “soft” elements:

Hard Elements Soft ElementsStrategy Structure

Systems

Shared Values Skills

Style

Staff

“Hard” elements are easier to define or identify and management can directly influence

them: These are strategy statements; organization charts and reporting lines; and formal

processes and IT systems.

“Soft” elements, on the other hand, can be more difficult to describe, and are less

tangible and more influenced by culture. However, these soft elements are as important

as the hard elements if the organization is going to be successful.

Let’s look at each of the elements specifically:

Strategy: the plan devised to maintain and build competitive advantage over the

competition.

Structure: the way the organization is structured and who reports to whom.

Systems: the daily activities and procedures that staff members engage in to get

the job done.

Shared Values: called “super ordinate goals” when the model was first

developed, these are the core values of the company that are evidenced in the

corporate culture and the general work ethic.

Style: the style of leadership adopted.

Staff: the employees and their general capabilities.

Skills: the actual skills and competencies of the employees working for the

company.



Chapter – 4

SWOT Analysis

SWOT Analysis refers to the analyzing the strength, weakness, opportunity and

threat of the organiasation (Company)

SWOT is a compound of two factors namely external factors and internal

factors. Strength and weakness are the internal factor which can be controlled by the

technical and personnel departments. Opportunity and threat are the external factors,

which cannot be controlled by the company. External factors may include political

factors, Socio-Cultural factors, Technical factors, demography, Environmental factors

etc.

Larsen & Toubro - SWOT Analysis company profile is the essential source for

top-level company data and information. Larsen & Toubro - SWOT Analysis examines

the company’s key business structure and operations, history and products, and

provides summary analysis of its key revenue lines and strategy.

STRENGTHS

Leading Market Position

Integrated Operations

End Use Markets

Strong Order Book Position

Product development capabilities

Manufacturing Excellence

Customer knowledge Leading to user friendly products

Well-established marketing department


Adherence to extremely high level of quality control

WEAKNESS

Increasing Expenses

Increase in attrition rate from past few years.

Very less penetration to the other medical manufacturing segments.

Low existence of market segment.

Poor transportation facility for the life saving equipments.

OPPORTUNITIES

Strategic Alliances

Strengthening International Presence

Rising Demand for Hydrocarbon Projects

Expanding new manufacturing facilities

Increasing exports in New technological area

Focus on strange thinning competitors required in upstream business.

Enhancing capacities through new design engineering centers

Continuing focus on Infrastructure sector in investment.

THREATS

Revenue Concentration

Intense Competition

Challenges To Order Execution

Government regulation.

Huge cost incurred in importing raw materials.

Delay in supply of raw materials.

Production depends on customer requirements and demand condition.


Chapter – 5

Analysis of Financial Statement

Annual results in details (Rupees in Crores)

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06Other income 739.78 587.87 462.29 545.71Stock adjustment -105.11 -746.17 -56.45 61.81Raw material 7,452.02 6,516.82 4,460.27 3,636.95Power and fuel - - - -Employee expenses 1,998.02 1,535.44 1,258.21 890.03Excise 398.47 332.78 321.75 230.76Admin and selling expenses 1,839.50 1,374.17 1,495.85 1,215.06Research and development expenses - - - -Expenses capitalized - - - -Other expenses 18,885.10 13,359.81 8,674.42 7,891.57Provisions made - - - -Depreciation 305.99 211.60 170.01 114.49Taxation 1,231.21 982.05 601.87 371.26Net profit / loss 3,481.66 2,173.42 1,403.02 1,012.14Extra ordinary item 772.46 87.23 - 69.75Prior year adjustments - - - -Equity capital 117.14 58.47 56.65 27.48Equity dividend rate - - - -Agg.of non-prom. shares (Lacs) 5684.96 2802.45 2.76 1373.86Agg.of non promoter Holding (%) 97.06 95.87 97.57 100.00OPM (%) 11.24 11.17 9.76 6.43GPM (%) 12.11 12.72 11.84 9.26NPM (%) 9.93 8.43 7.64 6.56


Annual results in brief

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06Sales 34,324.84 25,187.48 17,900.59 14,883.68Operating profit 3,856.84 2,814.63 1,746.54 957.50Interest 350.22 122.66 33.93 75.07Gross profit 4,246.40 3,279.84 2,174.90 1,428.14EPS (Rs) 59.44 74.34 49.53 73.66

Ratios

Mar ' 09 Mar ' 08 Mar ' 07

Per share ratios

Adjusted EPS (Rs) 45.05 69.13 49.36Reported EPS (Rs) 59.45 74.35 49.53Dividend per share 10.50 17.00 13.00Operating profit per share (Rs) 70.72 110.81 71.77Book value (excl rev res) per share (Rs) - 8.03 202.30Net operating income per share (Rs) 578.06 853.36 622.91Free reserves per share (Rs) 205.21 319.09 197.15

Profitability ratios

Operating margin (%) 12.23 12.98 11.52Gross profit margin (%) 11.39 12.19 10.61Net profit margin (%) 10.06 8.54 7.74

Leverage ratios

Long term debt / Equity 0.43 0.27 0.24Total debt/equity 0.52 0.37 0.36Owners fund as % of total source 65.47 72.66 73.42Fixed assets turnover ratio 6.23 6.09 6.21

Liquidity ratios

Current ratio 1.30 1.18 1.26Quick ratio 0.96 0.86 0.93Inventory turnover ratio 6.01 6.00 6.11


Mar ' 09 Mar ' 08 Mar ' 07

Payout ratios

Dividend payout ratio (net profit) 20.58 26.29 30.04Dividend payout ratio (cash profit) 18.92 23.96 26.97Earning retention ratio 72.84 71.72 69.85Cash earnings retention ratio 75.66 74.40 72.95

Component ratios

Material cost component (% earnings) 27.51 33.09 30.15Selling cost Component 0.92 1.28 1.13Exports as percent of total sales 21.70 22.67 21.36Import comp. in raw mat. Consumed 44.34 39.78 49.28Long term assets / total Assets 0.35 0.38 0.30Bonus component in equity capital (%) 76.77 53.71 55.44

Working capital

Working Capital to Sales 0.10 -- 0.10Working Capital Days (days gross sales) 20.10 13.10 29.40Receivables (days gross sales) 107.50 106.50 111.70Creditors (days cost of sales) 85.40 95.00 92.30FG Inventory (days cost of sales) 4.40 5.70 6.10RM Inventory (days consumption) 21.00 19.30 18.80

Growth

Total Operating Income 35.44 41.05 19.38EBITDA 27.79 60.79 69.30EBIT 26.49 64.64 71.95Net Profit 60.28 55.20 38.43Total Assets 45.34 66.22 27.72


Balance Sheet of Larsen and Toubro------------------- in Rs. Cr. -------------------

Mar '07 Mar '08 Mar '09Total Share Capital 56.65 58.47 117.14Equity Share Capital 56.65 58.47 117.14Share Application Money 0.00 0.00 0.00Preference Share Capital 0.00 0.00 0.00Reserves 5,683.85 9,470.71 12,317.96Revaluation Reserves 27.93 25.90 24.59Networth 5,768.43 9,555.08 12,459.69Secured Loans 245.40 308.53 1,102.38Unsecured Loans 1,832.35 3,275.46 5,453.65Total Debt 2,077.75 3,583.99 6,556.03Total Liabilities 7,846.18 13,139.07 19,015.72

Gross Block 2,876.30 4,188.91 5,575.00Less: Accum. Depreciation 1,122.83 1,242.47 1,421.39Net Block 1,753.47 2,946.44 4,153.61Capital Work in Progress 471.22 699.00 1,040.99Investments 3,104.44 6,922.26 8,263.72Inventories 3,001.14 4,305.91 5,805.05Sundry Debtors 5,504.64 7,365.01 10,055.52Cash and Bank Balance 993.68 779.86 693.13Total Current Assets 9,499.46 12,450.78 16,553.70Loans and Advances 2,449.14 3,861.10 7,198.85Fixed Deposits 100.75 184.60 82.16Total CA, Loans & Advances 12,049.35 16,496.48 23,834.71Deffered Credit 0.00 0.00 0.00Current Liabilities 8,362.01 11,892.75 15,211.04Provisions 1,180.13 2,035.42 3,066.53Total CL & Provisions 9,542.14 13,928.17 18,277.57Net Current Assets 2,507.21 2,568.31 5,557.14Miscellaneous Expenses 9.84 3.06 0.26Total Assets 7,846.18 13,139.07 19,015.72Contingent Liabilities 270.22 1,013.51 1,371.86Book Value (Rs) 202.65 325.98 212.32


Profit & Loss account of Larsen and Toubro------------------- in Rs. Cr. -------------------

Mar '07 Mar '08 Mar '09Sales Turnover 17,983.37 25,280.49 34,249.85Excise Duty 338.08 334.38 393.31Net Sales 17,645.29 24,946.11 33,856.54Other Income 459.80 616.69 1,612.58Stock Adjustments 121.76 746.17 105.11Total Income 18,226.85 26,308.97 35,574.23

Raw Materials 5,320.98 8,256.46 9,316.38Power & Fuel Cost 308.13 365.25 456.39Employee Cost 1,258.21 1,535.44 1,998.02Other Manufacturing Expenses 7,451.07 10,632.83 15,659.17Selling and Admin Expenses 1,222.80 1,393.80 1,844.83Miscellaneous Expenses 166.15 280.69 569.32Preoperative Exp Capitalised -3.30 -11.42 -24.48Total Expenses 15,724.04 22,453.05 29,819.63

Operating Profit 2,043.01 3,239.23 4,142.02PBDIT 2,502.81 3,855.92 5,754.60Interest 331.46 501.83 770.00PBDT 2,171.35 3,354.09 4,984.60Depreciation 160.13 195.94 284.83Other Written Off 0.00 15.66 21.16Profit Before Tax 2,011.22 3,142.49 4,678.61Extra-ordinary items -5.34 12.21 -21.09PBT (Post Extra-ord Items) 2,005.88 3,154.70 4,657.52Tax 601.87 982.05 1,176.19Reported Net Profit 1,403.02 2,173.42 3,481.66Total Value Addition 10,403.06 14,196.59 20,503.25Preference Dividend 0.00 0.00 0.00Equity Dividend 368.25 495.32 614.97Corporate Dividend Tax 53.34 76.26 101.83Shares in issue (lakhs) 2,832.71 2,923.27 5,856.88Earning Per Share (Rs) 49.53 74.35 59.45

Chapter – 6


Learning Experience

L&T is the largest and most Reputed company in Indian Private sector. L&T

with its diversified business has taken accounts ahead of competition in global Market.

L&T possesses a good competitive advantage with its high quality technology and a

wide spread marketing network.

L&T medical manufacturing unit has got nine departments, each department has

its own unique and specific work. The various departments are personal department,

service department, Quality assurance department, Training and documentation cell,

material department, plant engineering department, medical design marketing & FG

Stores.

The departmentalization helps to increase the efficiency of the employee as each

employee has expertise in their own work and the flow of work becomes easier and

faster. The product procedure passes through each department. This helps to maintain

the quality of product and meets the customer needs.

The IT service departments develop its own software according to the equipments of

the customers which reduces the cost burden and secures the duplication of such

software by the competitors.

L&T believe in providing quality produce to the customer, as they are life saving

equipments. The quality is entitled as inspection is done at each stage of production.

Each material is kept according to the required atmosphere. Example IC chips needs to

be kept in A/c most free atmosphere. L&T’s employment policies and system radiate

from a single principle-belief in people “People are our Core Strength”. Employees gain

a level of


freedom that provides security satisfaction and most importantly a sense of professional

fulfillment. The fresh engineers are taken as graduate engineer trainees (GETS) for a

probation period of 1 year during which they go through rigorous on site training. In

addition to specific training program for engineers there are several other training

programs across various functional areas such as finance strategy leadership, marketing,

along with soft skill program.

The stores department keeps the various raw materials in different condition according

to the requirements. The company procures raw material whenever required. The

company follows both FIFO and LIFO method for materials to production department.

In case the goods are of perishable in nature at that time they follow LIFO method and

for other materials they follow FIFO method.

Various departments process foreign purchase order. The purchase order is prepared on

selected vendor as per approved vendor. The material department release, foreign

purchase order. In case of amendment, the same shall be entered in the system

maintaining the basis.

Product design and development are carried out in 3D environment issuing state of the

out design and simulation software products are designed keeping in mind the

challenges that are faced tomorrow. The design team works on 3D design simulation

and analysis software to develop flow control products that are optimized and highly

reliable.


PART – B

CHAPTER-1

GENERAL INTRODUCTION

The term inventory includes raw materials, work in process finished products,

packing materials, spares and other stocks in order to meet an expected demand or

distribution in the future.

“Inventory are assets of the firms, and as such they represent an investment. Because

such investment requires a commitment of funds manager must ensure that the firm

maintains inventories at the current level. if they become too large, the firm losses the

opportunity to employ those funds more effectively. Similarly, if they are too small, the

firm may lose sales. Thus, there is an optimal level of inventories and there is an

economic order quantity model for determining the correct level of the inventory.”

Inventory is as old man. The primitive man’s inventory consisted of a few tools; as a

shepherd, man had to tend his flocks and herds; later, he had his granaries and

warehouses; today with industrialization, his inventories cover a very wide range. As

man has progressed and his needs and activities have multiplied, the range of inventory

has become larger and more diversified.

As of today, inventories include, among other, raw materials, part- finished goods,

finished goods and operating supplied. Each of these serves specific purposes. The raw

materials inventories are held for later conversion into semi- finished or finished goods.

Raw material inventories must exist because generally it is not always economically

feasible either to purchase or to schedule the delivery of raw material, as they are

needed in the production process.

Since manufacturing or processing always takes time, there is need for finished goods

inventory. In some industries, material must be processed in batches.


In other industries the flow of material may be steady, with the product existing

simultaneously in several stages of completion. In still other types of manufacturing it

is desirable from economic considerations, to process or schedule material in lots.

The nature of the product, the natures of the customer demand and the nature of the

manufacturing process determines, to a considerable extent, the need for finished goods

inventories. If the customer is willing to wait for the product to be manufactured, there

is need for finished goods inventories. Some times, the nature of the product prohibits

expensive finished goods inventories. Fresh fruits, vegetables and some other foods

have limited storage life, so the extensive inventories of these products are not

desirable. If the material must be processed in lots or batches. Finished goods

inventories will usually exist. Supplies inventories do not directly go into the product.

But they exist to facilitate smooth operation of the manufacturing process.

In general, inventory facilitates transit and handling. Materials may be transported

thousands of kilometers before they incorporated into an end product. All the time

material is in transit, which may be a period several months. During this transit,

materials constitute someone’s inventory. Finally, inventories are held to facilitate

product display and service to customers, batching in production I order take advantage

of longer production runs and provide flexibility in production scheduling.

Purpose of Inventory Management

INVENTORY MANAGEMENT must tie together the following objectives, to ensure

that there is continuity between functions:

Company’s Strategic Goals

Sales Forecasting

Sales & Operations Planning

Production & Materials Requirement Planning.


Inventory Management must be designed to meet the dictates of market place and

support the company’s Strategic Plan. The many changes in the market demand, new

opportunities due to worldwide marketing, global sourcing of materials and new

manufacturing technology means many companies need to change their Inventory

Management approach and change the process for Inventory Control.

Inventory Management system provides information to efficiently manage the flow of

materials, effectively utilize people and equipment, coordinate internal activities and

communicate with customers . Inventory Management does not make decisions or

manage operations, they provide the information to managers who make more accurate

and timely decisions to manage their operations.

INVENTORY is defined as the blocked Working Capital of an organization in the form

of materials. As this is the blocked Working Capital of organization, ideally it should be

zero. But we are maintaining Inventory. This Inventory is maintained to take care of


fluctuations in demand and lead time. In some cases it is maintained to take care of

increasing price tendency of commodities or rebate in bulk buying.

Traditional Supply Chain solutions such as Materials Requirement Planning, Inventory

Control, typically focuses on implementing more rapid and efficient systems to reduce

the cost of communicating information between and across the Inventory links in the

SCM. COM focuses in optimizing the total investment of materials cost and workload

for every Inventory item throughout the chain from procurement of raw materials to

finished goods Inventory. Optimization means providing a balance of supply to meet

the demand at a minimum total cost, Inventory level and workload to meet customers

service goal for each items in the link of Inventory Chain.

It is strategic in the sense that top management sets goals. These include deployment

strategies (Push versus Pull), control policies, the determination of the optimal levels of

order quantities and reorder points and setting safety stock levels. These levels are

critical, since they are primary determinants of customer service levels.

Keeping in view all concerns, the latest concept of Vendor Managed Inventory is used

to optimize the Inventory. We are entering into Vendor Managed Inventory, Annual

Rate Contracts with manufacturers or their authorized dealers, who maintain Inventory

on our behalf and supply the items as and when required.

VMI reduces stock-outs and optimize inventory in supply chain. Some features of VMI

include:

Shortening of Supply Chain

Centralized Forecasting

Frequent communication of inventory, stock-outs and planned promotions


Trucks are filled in a prioritized order , e.g. items that are expected to stock out

have top priority then items that are furthest below targeted stock levels then

advance shipments of promotional items

Despite the many changes that companies go through, the basic principles of Inventory

Management and Inventory Control remain the same. Some of the new approaches and

techniques are wrapped in new terminology, but the underlying principles for

accomplishing good Inventory Management and Inventory activities have not changed.

The Inventory Management system and the Inventory Control Process provides

information to efficiently manage the flow of materials, effectively utilize people and

equipment, coordinate internal activities, and communicate with customers. Inventory

Management and the activities of Inventory Control do not make decisions or manage

operations; they provide the information to Managers who make more accurate and

timely decisions to manage their operations.

The basic building blocks for the Inventory Management system and Inventory Control

activities are:

Sales Forecasting or Demand Management

Sales and Operations Planning

Production Planning

Material Requirements Planning

Inventory Reduction

The emphasis on each area will vary depending on the company and how it operates,

and what requirements are placed on it due to market demands. Each of the areas above

will need to be addressed in some form or another to have a successful program of

Inventory Management and Inventory Control.


Inventory is usually a distributor’s largest asset. But many distributors aren’t satisfied

with the contribution inventory makes towards the overall success of their business:

The wrong quantities of the wrong items are often found on warehouse shelves.

Even though there maybe a lot of surplus inventory and dead stock in their

warehouse(s), backorders and customer lost sales are common. The material a

distributor has committed to stock isn’t available when customers request it.

Computer inventory records are not accurate. Inventory balance information in the

distributor’s expensive computer system does not accurately reflect what is available

for sale in the warehouse.

The return on investment is not satisfactory. The company’s profits, considering its

substantial investment in inventory, is far less than what could be earned if the

money were invested elsewhere.


CONTROLING OF INVENTORIES:-

Inventory control techniques are employed by the inventory control organization within

the frame work of one of the basic inventory model, viz., fixed order quantity system or

fixed order period system. Inventory control techniques represent the operational aspect

of inventory management and help realize the objective of inventory management

control.

Several techniques of inventory control are in use and it depends on the convenience of

the firm to adopt any of the techniques. What should be stressed, however, is the need

to cover all items of inventory and all stages, i.e., from the stage of receipt from

suppliers to the stage of their use. The techniques most commonly used are the

following.

Always better control (ABC) classification

High, medium and low (HML) classification

Vital essential and desirable (VED) classification

Scarce, difficult and easy to obtain (SDE)

Fast moving, slow moving and non-moving (FSN)

Max-minimum system

Two bin system

Material requirement planning (MRP)

Just-in time (JIT)

INVENTORY CATALOGUE:-

Also called inventory directly, inventory catalogue is a pre-requirement for the

successful operation of inventory control techniques. The inventory of typical

production firm comprises 5 to 10 different items. Knowledge of each item and the

finished product of which each is a part is essential for employing any technique of

inventory control.


Inventory catalogue is prepared after all inventory items have been described, classified

and coded. Properly maintained inventory directory pry two important dividends.

An inventory catalogue serves, first as a medium of communication. It enables personal

located in many different departments to perform their jobs more effectively.

A second benefit produced by an inventory catalogue accrues to the inventory control

operation staff. This benefit takes the form of more complete and correct records

through the reduction of duplicate records for identical parts. A purchasing department

often buys the same part from several different suppliers, under various manufacturer’s

and part numbers. Unless control requirements dictate otherwise, identical parts from

all suppliers should be consolidated on one inventory record.

ABC ANALYSIS:-

One of the widely used techniques for control of inventories is the ABC (Always Better

Control) analysis. The objective of ABC control is to vary the expenses associated with

maintaining appropriate control according to potential savings associated with a proper

level of such control.

Once inventory is classified, we have a base for deciding where we will put our effort.

Logically, we except to maintain strong control over the ‘A’, items taking whatever

special action needed to maintain availability of these items and hold stocks at the

lowest possible levels consistent with meeting demands. At the other end of the scale,

we cannot afford the expense of rigid controls, frequent ordering and expediting

because of low amount in this area. Thus with the ‘C’ group, we may maintain

somewhat higher safety stocks, order more months of supply, expect lower levels of

customer service, or all the three. It is for this selective approach, that ABC analysis is

often called Selective Inventory Control Method (SIM).


The inspiration behind the ABC analysis has been drawn from vilfredo Pareto, an

Italian economist and sociologist who generated some highly debatable concept of

economics and sociology. One that is most interesting to a student of inventory

management is the concept of ‘Pareto’s laws’. Pareto arrived at the general conclusion

that income distribution patterns were basically in the different countries and in

different historical periods.

Extending Pareto’s principle to inventory, it is always possible and necessary to

separate ‘vital few ‘from ‘trivial many’ of the stock items for there effective control.

Separating vital few from trivial many is what is precisely done in ABC analysis.

Pareto’s principle was brought to the attention of people concerned with inventory

management by H. Ford Dickie, who applied Pareto’s law to

Inventory and developed the general concept of ABC analysis like so many ideas

however it has not been completely understood. The idea of distribution of value for

inventory stratification is neither a system nor a technique; it is a fundamental

management principle with universal application potential.

The following procedure is suggested for developing an ABC analysis:-

1. List each item carried in inventory by number or some other designation.

2. Determine the annual volume of usage and rupee value of each item.

3. Multiply each items annual volume of usage by its rupee value.

4. Compute each items percentage of the total inventory in terms of annual

usage in rupees.

5. Select the top ten percent of all items, which have the highest rupees

percentages and classify them as ‘A’ items.

6. Select the next 20 percent of all items with the next highest rupee percentages

and designate those ‘B’ items.


7. The next 70 percent of all items with the lowest rupee percentages are ‘C’ items.

HML CLASSIFICATIONS:-

The High, Medium and Low (HML) classification follows the same procedure as is

adopted in ABC classification. Only difference is that in HML, the classification unit

value is the criterion and not the annual consumption value. The items of inventory

should be listed in the descending order of unit value and it is up to the management to

fix limits for three categories.

The HML analysis is useful for keeping control over consumption at departmental

levels for deciding the frequency of physical verification, and for controlling purchases.

VED Analysis:-

Vital, essential and desirable (VED) analysis is done mainly for control of spare parts

keeping in view the critically to production. Vital spare parts keeping in view the

critically to production. Vital spares are spares the stock-out of which even for a short

time will stop production for quite some time. The stock-out cost of vital items will stop

production for quite sometime. The stock-out cost of vital items is very high. Essential

spares are the absence of which cannot be tolerated for more than a few hours a day and

the cost of lost production is high. Such spares are essential for the production to

continue. The desirable spares are those, which are needed, but their absence for even a

week or so will not lead to stoppage of production. Some papers though, negligible in

value may be vital for the production to continue and require constant attention. Such

spares may

Not receive the attention they deserve if they are maintained under ABC analysis

method because their consumption value is small.

SDE CLASSIFICATION:-


The SDE analysis is based on the availability of items and is very useful in the context

of scarcity of supply. In this analysis, ‘S’ refers to scarce items, generally imported and

those which are in short supply. ’D’ refers to difficulty items, which are available

indigenously but are different items to procure. Items which have to come from distant

places or for which reliable suppliers are difficult to cum by fall in to ‘D’ category. ‘E’

refers to items which are easy to acquire and which are available in local markets.

The SDE classification based on problems faced in procurement is vital to the lead time

analysis and in deciding on purchasing strategies.

FSN Analysis:-

FSN stands for Fast moving, slow moving and non moving, here classification is based

on the pattern of issues from stores and is useful controlling obsolescence.

To carry out FSN analysis, the date of receipt or the as date of issue, whichever is later,

is taken to determine the number of months, which have lapsed since the last

transaction. The items are usually grouped in period 12 months.

FSN analysis is helpful in identifying active items which need to be reviewed regularly

and surplus items which have to be examined further. Non-moving items may be

examined further and their disposal can be considered.

ECONOMIC-ORDER-QUANTITY DECISION MODEL:-

The first major decision in managing goods for sale is deciding how much of a given

product to order. The EOQ is a decision model that calculated the optimal quantity of

inventory to order under a restrictive set of assumption. The simplest version of this

model incorporates only ordering costs and carrying costs into the calculations. It

assumes the following…

1. The fixed quantity is ordered at reorder point.


2. In deciding the size of the purchase order managers consider the costs of quality

only to the extent that these costs affect ordering cost or carrying cost.

3. Demand, ordering costs and carrying costs are known with certainty. The purchase-

order lead time- the time between placing an order and its delivery is also known

with certainty.

4. Purchasing cost per unit are unaffected by the quantity ordered, this assumption

makes purchasing cost irrelevant to determining EOQ, because purchasing costs of

all units acquired will be the same regardless of the order size in which the units are

ordered.

5. No stock outs occur. One justification for this assumption is that the costs of a stock

out can be prohibitively high. We assume that to avoid these potential costs,

manager always maintain adequate inventory so that no stock out cost can occur.

The formula for EOQ model is:-

EOQ = 2AB/C

A = Annual consumption

B = Relevant ordering costs per purchase order

C = Relevant carrying costs of one unit in stock for the time period used

MATERIALS REQUIREMENT PLANNING (MRP) is a “push-through” System

that manufactures finished goods for inventory on the basis of demand forecasts. MRP

uses.

1. Demand forecasts for the final products.

2. A bill of materials, components and subassemblies for each final product.

3. The quantity of materials, components, finished products and product

inventories to pre determine the necessary output at each stage of production.


Taking in to account the lead-time required to purchase materials and to manufacture

components and finished products, a master production schedule specifies the quantity

and timing of each item to be produced. Once scheduled production starts the output of

each department is pushed through the production line whether it is needed or not. The

result is often an accumulation of inventory as work station that receives work they are

not yet ready to process.

Inventory management is a key challenge in an MRP system. The management account

can play several important roles in meeting this challenge. A key role is maintaining

accurate and timely information pertaining to materials, work-in-process and finished

goods inventories. The change enabled national to move products from plant to

customers in 4 days rather than 45 days, And to reduce distribution costs from 2.6% to

1.9% of revenues. These benefits subsequently led national to outsource all its logistics

to federal express, including shipments between its own plants in the United States,

Scotland and Malaysia.

JUST-IN TIME PURCHASING:-

Just-in-time (JIT) purchasing of materials such that a delivery immediately precedes

demand or use. JIT purchasing requires organizations to restructure their relationships

with suppliers and place smaller and more frequent purchase orders. JIT purchasing can

be implemented in manufacturing sectors of the economy consider JIT purchasing for

Hewlett Packers (H P’s) manufacture of Kayak work station production line HP has

long term agreements with suppliers who provide the major components for this

product line. Each supplier required to deliver components such that HP’s final

assembly plans meet their own production schedule and it have minimal inventory of

the various components on hand.

Fixation of stock levels:-


In order to know when the purchase requisition should be sent different levels

for stock of each item are decided. These stock levels are.

1. Minimum level (safety level)

2. Reorder level

3. Maximum level

Minimum level:-

It is the level below which stock of an item is never allowed to fall. If the actual

stock goes below this point, there is possibility of up setting of production schedules for

want materials. This level is determined by taking into account:

Average rate of consumption.

Head-time i.e. average time required fresh supply of materials.

Re ordering level.

Minimum Stock = Reorder level – Average consumption * Average lead time.

Re-ordering level:-

When stock in hand reaches this level, it is an indication that replenishment is

necessary and proposals for purchase are to be initiated. This level is fixed some where

between the maximum and minimum levels. The quantity of material represent by the

difference between the re-ordering level and the minimum level will be sufficient to

meet the demand of production till such time as the other materializes and supplies are

delivered.

Re-ordering level = Maximum consumption * Maximum lead time.

Maximum level:-


The maximum level indicates the maximum quantity of an item of material that

can hold in stock at any time. This level is fixed for avoiding overstocking of the

material. While fixing the level, the following are the factors to be considered.

Rate of consumption and lead time.

Availability of funds.

Nature and durability of materials.

Price fluctuations.

Supply conditions.

Cost of carrying the inventory.

Maximum requirement for production purpose at any point of time.

Maximum level = (Reorder level + Reorder quantity) - (minimum consumption *

minimum lead time).

STOCK VALUATION:-

Inventories begin the assets of a company are shown in the Balance Sheet and

Profit and Loss account. The valuation of inventories is a difficult task as the stock of a

particular item may consists of the same material purchased a various prices.

They can be valued on the basis of average price, last price paid or on the current

market price. Each of these values would be different for the same. Inventories

measured by money value usually constitute the major element in the working capital.

The need to control inventories apart from fulfilling other purposes such as:

The preparation of accurate cost accounts.

Evaluation of purchase performance.

An indication of quantity and value of stores with out physical stock taking.

Working out important management ratios like sales to inventory, purchase

to inventory etc.,

The preparation of materials budget.


Material Receipt Voucher (MRV) or the Goods Received Note (GRN) entry is

prepared after the material is purchased received inspected and booked in stores. Entry

for the value of purchase is not as simple as the receipt of goods i.e., quantity received.

FACTORS INFLUENCING VALUATION:-

They are :

Size of inventory.

Turnover.

Physical nature of inventories.

Frequency and magnitude of price fluctuation.

Price outlook.

The tax laws.

The method adopted for inventory valuation affects the profits reflected in the

profit and loss account. Liquidity and profitability decisions of a company are

influenced by the method of inventory valuation:

High inventory valuation leads to,

Inflated profits.

False sense of adequacy of working capital.

Possible distribution of dividends / bonus.

Excessive tax payments.

The value of purchase includes:-

Invoice price.

Sales tax / octroi.

Excise duty / customs duty

Insurance.


Freight, carriage, handling charges etc.

The M.R.V. is priced for the appropriate invoice and the material account is

debited is the stores ledger.

PHYSICAL VERIFICATION OF STOCK:-

Checking of stock by physical verification is an essential feature of stock control

such checking may be periodic or continuous. Under periodic stock verification system,

all the items of the stock are to be verified once in a year at the time of preparing annual

accounts resulting in the following difficulties.

1. Loss of stoppage of production for stock taking.

2. Shortage of experienced stock-verifiers, if all items of stores are to be verified at

a time.

3. Thus, quality of verification suffers.

4. Discrepancies reveled during verification are rectified only at the end of the year.

5. Element of “surprise check” which helps to detect irregularities are absent.

ISSUE OF MATERIALS:-

Materials issued from stores should be valued at the rate they are carried n stock.

Materials are valued at cost and entry in the stores ledger is made with every receipt.

Different lot of materials may be received at different ices. Hence, when issues are

made from stock, it may happen that materials from more than one lot may have to be

issued. Which price will be application in such case? Actual cost or average price,

Market price or national price? Various methods for pricing materials issued form

stores are classified in the following manner.

A. Cost price method:


1. Specific price

2. First in First out(FIFO)

3. Last in last out(LIFO)

4. Highest in, first out(HIFO)

5. Base stock price

B. Average price method:

1. simple average

2. Weighted average

3. Periodic simple average

4. Periodic weighted average

5. Moving simple average

6. Moving weighted average

C. Notional price methods:

1. Standard price

2. Inflated price

3. Re-use price

FIFO (First-In-First-Out) Method:-

It is assumed that materials purchased are issued in strict chronological order i.e.

oldest stock are issued first at the oldest cost price listed on the stock ledger sheets. The

material on hand at all items is the most recent purchases made and frequently termed

as the “recent purchase” method.

Suppose, the quantity demanded is greater in amount than the units remaining in

the first lot, he uses the cost price of the second lot, then third, fourth and so on until

enough material is obtained to fill the requisition.

Benefits:-

Simple to understand & easy to operate.


Logical method as material received first.

The method recovers the cost price of the materials.

This method is useful when prices are falling.

Closing stock wil be valued at the market price.

Limitations:-

Increase the possibility of clerical errors.

In case of fluctuations in prices of materials, comparison

between one job and the other job becomes difficult.

For pricing one requisition more than one price has often to be

taken, then prices rise the issue price does not reflect the market price as

materials are issued from the earliest consignment profits are inflated

creating income tax problems.

Application:-

It can be used for materials, which are subject to deterioration and obsolescence.

It is also useful when transactions are not too many and prices of materials are fairly

steady.

LIFO (Last-In-First-Out) Method:-

Materials are issued at actual cost and this is also suitable when a price

fluctuation is not high. This method is also known as “replacement cost” methods.

Here, goods are issued from those recently purchased at the cost of the last lot of

materials received. The production costs are closely related to current price level. It is

favored frequently because it results in reducing income taxes during a period of rising

prices.

Benefits:-

Simple to operate and useful when transactions are not too many and the

prices are fairly steady.


This method recovers the cost from production because actual cost of

material is charged to production.

Current market prices of materials are reflected in the cost of sales

provided the materials are recently purchased.

It is suitable in times of rising prices.

Limitations:-

Results in clerical errors.

Comparison between one job and the other job will become difficult.

For pricing a single requisition, more than one price has often to be

adopted.

The stock in hand is at price that does not reflect current market price. Hence,

closing stock will be understated or overstated in the balance sheet.

Application:-

It is used in times of rising prices because material will be issued from the latest

consignment at a price which is closely related to the current price levels.

HIFO (Highest-In-First-Out) Method:-

In this method the highest cost is taken for issues of materials in the stock. It is

based on the assumption that the closing stock of materials should be always remain at

the minimum value.

Benefits:-

It is helpful in increasing the price of the contract or products.

Limitations:-


This method is not popular at it always under values the stock, which

amounts to creating a secret reserve.

Application:-

This is mainly used in case of cost plus contracts or monopoly products.

NIFO (Next-In-First-Out) Method:-

In this method the replacement value is taken into account materials are issued at

a price at which they can be replaced. There fore, cost of the materials is not

considered.

Benefits:-

It discloses whether the buying is efficient or in-efficient. These

will be efficiency is buying if the marketing price is higher than the cost

price.

Limitations:-

Cost price of the materials from production is not recovered because are

issued at the market price.

It makes stores ledger unnecessarily complicated by introducing the

element of profit or loss.

Application:-

This method is considered to be the best where quotations have to be sent, as it

would reflect the latest competitive conditions so far as materials are concerned. But

this method is rarely used.

BASE STOCK METHOD:-


Materials are issued at cost while maintaining a base or the minimum stock at

original cost and are never touched except in emergency conditions. The base always

valued at the cost price of the first lot and is carried forward as a fixed asset.

This method works with some other method is generally used with FIFO or LIFO

method. Any quantity over and above the base is issued in accordance with the other

method, which is used in conjunction with this method.

The objective of this method of this method is to issue the material according to

the current prices. This will be achieved only when the LIFO method is used along with

the Base Stock Method.

There are two components in stock here- Base stock valued at base price and latest

purchased stock not yet issued to production valued at actual.

Benefits:-

Base stock maintained will help to meet any emergency situation like

stock-outs etc.,

SIMPLE AVERAGE METHOD:-

This method consists of re-calculating an average price after a new consignment

of good is received at a new price. Taking the price paid per unit of stock till date and

the price of the new consignment does this. Simple average price calculated by dividing

the total of unit purchase price of different lots in stock on the date of issue by the

number of prices used in the calculation and quantity of different is ignored.

Benefits:-

Rational, systematic and not subject to manipulation.

This is the best method when prices fluctuate considerably because this

method tends to smooth out fluctuations in prices.

Limitations:-


This method may lead to over-recovery or under-recovery of cost of

materials from production because quantity purchased in each lot is

ignored.

WEIGHTED AVERAGE METHOD:-

Similar to Similar Average Method, this method takes into account the total

quantities along with the total costs.

Benefits:-

It recovers the stock price of the materials from productions.

This method eliminates the necessary for adjustments in stock valuation.

Issue prices are not calculated each time issues are made. They are charged

only when new lot of materials is received.

Limitations:-

Chances of clerical errors.

Closing stock is not valued at current cost.

Application:-

This method is mostly used by different organizations because it satisfies most of

the conditions of a good method of valuing material issues.

FINANCIAL MANAGER’S ROLE IN INVENTORY MANAGEMENT:-

For a majority of the companies, the inventory represents a substantial

investment. The inventory program is part of the planning budget which often falls with

in the financial area. As management becomes increasingly aware of the necessity of

inventory control, ultimate responsibility is placed more and more in the and of the

financial manager who is playing an increasingly important role in determining the

nature of control exercised the methods of balancing the relative cost involved and

measurement of performance of inventory control. He may be having supervisory


authority in this area or he may be a member of policy committee with broad

responsibilities. In smaller firm, he often participates even more directly in the

management of inventories.

Though the corporate financial officer may not be directly connected with

inventory policies these have a direct and important bearing on the financial need, of

the firm. The financial officer can do a good job of anticipating change in the need for

funds if he thoroughly understands the implication of changing inventory policies

where financier are a limiting factor.

“GOOD INVENTORY MANAGEMENT IS GOOD FINANCIAL

MANAGEMENT”.

The greater the opportunity cost of fund invested in inventory the greater the

incentive to reduce the lead time required receiving inventory once an order is placed.

The greater the efficiency with which the firm manages its inventory, the lower the

required investment in inventory. Inventories should be under constant review.

The financial office should pay attention to the following aspects in inventory

management.

Action taken against imbalance of raw-materials and goods in process inventory

that may limit the utility of stock that item which is in shortest supply. Here one

appreciate the common saying that the strength of its weakest link.

The full safety against of inventory has a prohibitive cost. There should, however

reasonable procurement lead time assumption and safety block level.


Production schedules, as far as possible, should be firmly adhered for reducing

inventory of raw material and work-in-process goods. In case of changes of

production schedule, purchasing department should set early notification.

There should be an efficient system to dispose of goods that are obsolete, surplus

or unusable for production.

Continuous efforts have to be made to shorten the production cycle. The longer

production run should be worth the cost and rich of the extra inventory

investment.

Special pricing policy may be required to move extremely slow moving finished

item.

The business firm which is chronic patients of shortage of funds may find to them

advantage that a serious look into their inventory accumulation proves highly

rewarding. Often one is inclined to agree with the observation that “when you need

money look at your inventories before you look, to your banks”. Even if there is no

shortage of funds in a business, the financial executive has a participate actively in the

formulation of inventory policies with a view to speeding inventory turnover ratio and

maximizing return on investment.

Financial manager are concerned with any aspect of inventory management that is

controllable from the stand point of reducing inventory cost and risk.

1.1 STATENENT OF PROBLEM

“A study on inventory management.” With reference to Larsen & Toubro Ltd., is taken

by the researcher now a days inventory management is very important to improve the

business at the same time to improve the profits effectively and efficiently.


1.2 OBJECTIVE OF THE STUDY

For the purpose of these studies specific objectives were identified and analyzed.

a. Analysis of inventory turnover period and turnover ratios of the company.

b. Proportionate growth of assets with respect to inventories of the company

c. To project the inventory management technique adopted by the company.

d. Classification of inventories of individual components of the company

e. Determination of the growth rate of individual components of the

company

f. Overhaul costs of inventories and reduction in costs Possible by reducing

at least 10% inventories.

g. To suggest ways and means of effective inventory management.

1.3 SCOPE OF THE STUDY

Inventory is the life blood of the company and both high as well as low blood

pressure are equally dangerous to the life and health of a person, likewise excessive

inventory or under inventory both are harmful to the economic life and health of the

organization. So inventory of a reasonable size must always be kept by an organization

to maintain its good health.

A basic function of inventory management allows the successive stages in the

purchasing, manufacturing and distribution process to function somewhat

independently of on another. The process and movement of inventories, some time

called pipe line stocks. There is lot size inventory where more units are manufactured or

purchased than needed for present use. The reason being the economy may be obtained

form larger lots verses smaller lots through lower total set up cost or quantity discounts.


When the demand for an item is known to be variable or seasonal, it may be more

economical for a firm to include some of the fluctuations by permitting inventories.

1.4 METHODOLOGY

Data is the collection of necessary details to gain further information. The data is

classified into two types. They are:-

Primary data:

Primary data are the first hand information collected from original sources through

various methods such as observation, interview, etc. Primary data is collected by

interviewing certain executives who were chosen on the bases of their in–depth

knowledge and work experience in the company. The interview was informal in nature

in order to gain as much information as possible. A suitable interview schedule was

prepared to collect the primary data, which is enclosed in the annexure.

Secondary data:

Secondary data is the data, which is collected from sources, which contain data, which

have been collected and compiled for another purpose. The secondary sources in this

study consist of published records and reports. A research on this nature is by and large

desk job work, so most of the data involved here is secondary in nature and they include

journal- India Today, Business world.

Other books and accounts maintained by the officials of the company.

Income statements and Balance Sheets.

1.5 LIMITATIONS OF THE STUDY

The investigator has faced the following limitations during the course of study. As this

is the study undertaken to fulfill the academic requirement, it is bound have certain

limitations. Most prominent among them are.


1. It is not possible to make a comparative analysis due to inability in getting

information and data relating to other industries.

2. Time to submit the report is very short.

3. As the study is not empirical one as we do not have the experience it is just

an amateur one.

4. The study is purely of academic interest.

5. To study a subject like ratio analysis in detail, a time was too short.


CHAPTER-2

2.1 DATA ANALYSIS AND INTERPRETATION

This involves following steps:-

DATA ANALYSIS PLAN;

For the purpose of this study, a researcher has adopted the following methodology.

A. Identification of study period 2007-2009.

B. Collection of published information (Inventory sheet & B/s).

C. Identification of construction of financial sheet, which are likely to reflect efficiency

of inventory management.

D. Interpretation of these i.e..

a) Inventories are a percentage of total assets.

b) Inventories are a percentage of current assets growth of inventory in

percentage.

c) Growth of total assets/ growth of current assets.

d) Determining whether growth of inventories is proportional to growth of Total

assts and current assets.

e) Classification of inventories into finished goods, raw materials, spares, WIP,

and Interpretations these are in annual basis.

f) Determination of growth rates of components of inventories.

g) Possible reduction in inventory costs for a 10% reduction of inventories over

Study period.

h) Finally conclusions and recommendations.


Inventory turnover ratio:

Inventory turnover ratios are stock turnover ratio which indicates number of

times stock is turn over during a year. In other words it is ratio between sales and

average inventory. A slow turn over result in over investment in inventory and rapid

turn over contributes a high working capital.

Table showing inventory turnover times for the years 03-06

YEAR SALESAVERAGE

INVENTORY

TURNOVER

TIMES.

06-07 17,645.29 3,001.14 5.88

07-08 24,946.11 4,305.91 5.79

08-09 33,856.54 5,805.05 5.83

Graph showing inventory turnover times for the years 07-09


Size of inventory:-

The position of inventory and its percentage growth over the previous year for the

company as a whole. A minute study in terms of the progressive base. Year percentage growth

however indicates that pace of growth of total inventory.

(Table 1) Showing progressive base year percentage growth of total inventory

YEARTOTAL INVENTORY (in

Cr) GROWTH OF TOTAL

INVENTORY.(%)2006-2007 3,001.14 35.782007-2008 4,305.91 43.472008-2009 5,805.05 34.81

The table summarizes the growth of total inventory during 20076-09. The calculation is

done based on the following formula.

Growth of the inventory = (base year – following year) / base year.

So based on the above formula in the year 2006-07 growth is 35.78%. But in the year

07-08 the growth is 43.47%. Again in the year 08-09 the growth is came down to 34.81%.


(Table 2) Showing The Percentage Of Inventory In Current

Assets (Rs In Cr)

YEAR INVENTORY CURRENT ASSETS

PERCENTAGE

2006-2007 3,001.14 9,499.46 31.59

2007-2008 4,305.91 12,450.78 34.58

2008-2009 5,805.05 16,553.70 35.07

In the year 2006-07 the percentage of inventory in current assets was 31.59% but in

07-08 the percentage of the inventory in current assets increased to 34.58% where as in the

year 08-09 the percentage of inventory in current assets is increased to 35.07%. The over all

position of the inventory in current assets is keep on increasing.

Graph Showing The Percentage Of Inventory In Current Assets


(Table- 3) Showing The Percentage Of Inventory In Total Assets (Rs In Cr)

YEAR INVENTORY TOTAL ASSETS PERCENTAGE

2006-2007 3,001.14 7,846.18 38.24

2007-2008 4,305.91 13,139.07 32.77

2008-2009 5,805.05 19,015.72 30.52

L & T inventories % with the total assets has come down from the 21.22 to 21.85 in the

year 2003. in the year 2004 it has come up 21.85 to 22.02

Graph-3

Graph Showing inventory as a percentage of Total Assets


(Table -4) Table showing Raw material turnover Ratio.

Formula

Raw material Turnover Ratio:-

Year R M (% ) ratio2006-07 1.07

2007-08 1.51

2008-09 2.06

L&T, R M inventory percentage with total inventory has come up from 1.07 to

1.51 in the year 2008 & has come up to 2.06 in the year 2009.

Graph-4

Graph showing Raw material turnover Ratio.


Sales

Average Raw Material

(Table – 5) Table Raw material holding Period.

Formula

Raw material holding Period : -

Year R M holding period

2006-07 99.07

2007-08 119.65

2008-09 109.50

The Raw material holding period has increased from 99.07 to 119.65 in 2008

and decreased to 109.50 during the year 2009.

Graph-5

Graph Raw material holding Period.


365

RM Turn Over Ratio

(Table-6) Table showing Working In Progress Turn Over Ratio

Formula

WIP TO Ratio : -

Year WIP (% ) ratio2006-07 37.44

2007-08 35.68

2008-09 32.52

The working in progress at L&T has decreased in 2008 from 37.44 to 35.68 again in

2009 it has decreased to 32.52.

Graph-6

Graph showing Working In Progress Turn Over Ratio

(Table – 7) Table showing WIP holding Period.


Sales

WIP Inventory

Formula

WIP holding Period : -

Year WIP holding period2006-07 9.75

2007-08 10.23

2008-09 11.22

The WIP holding period of L&T which is 9.75 in the year 2007 Which has

increased to 10.23 in 2008 later again it increased to 11.22 in the year 2009.

Graph-7

Graph showing WIP holding Period.


365

WIP Turn Over Ratio

(Table – 8) Showing Finished Goods Turn over Ratio

Formula

FG TO Ratio : -

Year Finished Goods(%) ratio2006-07 7.93

2007-08 12.00

2008-09 21.08

The Finished goods turnover ratio of L&T was 7.93 in 2007, which increased to

12.00 in 2008, in the year 2009 it increased to 21.08.

Graph-8

Graph Showing Finished Goods Turn over Ratio


Sales

FG Inventory

(Table – 9) Showing Finished Goods holding Period.

Formula

Finished Goods holding Period:

Year FG holding period2006-07 46.02

2007-08 30.41

2008-09 17.31

The finished goods holding period was 46.02 in the year 2007. which later In the

year 2008 decreased to 30.41, but drastically went down in the year 2009 to 17.31.

Graph-9

Graph Finished Goods holding Period.


365

FG Turn Over Ratio

Total assets turnover:-(Rupees in Cr)

By using the formula which is given below we can calculate the total

turnover ratio.

Total assets turnover = Cost of goods sold / average total sales.

For the year 2008-09

= 29,714.52 / 25804.3

= 1.15.

For the year 07-08

= 21,706.88 / 25804.3

= 0.84.

For the year 06-07

= 15,612.16 / 25804.3

= 0.61.

After calculating the total assets turnover, in the year 06-07 the ratio was 0.61

but in the year 2007-08 it increased to 0.84 later in the year 2008-09 it increased to

1.15. So it is clear that the part of the turnover in the total assets is slight increase. It is

showing positive effect to the company.

Fixed asset turnover:-

The following is the formula for calculating the fixed asset turnover.

Fixed asset turnover = cost of goods sold / average total fixed assets.


= 51,496 / 36,882.43

= 0.81.


For the year 07-08

= 36,454.4 / 36,882.43

= 0.59.

For the year 06-07

= 22,246.9 / 36,882.43

= 0.42.

After calculating the fixed asset turnover, in the year 06-07 the turnover ratio

was 0.42 but in the year 07-08 the turnover is increased to 0.59 later in the year 08-09 it

increased 0.81. So it is clear the part of the turnover in the total assets is increase. It is

positive effect to the company.

Current asset turnover:-

The following is the formula is for current assets turnover.

Current asset turnover = cost of goods sold / average current assets turnover


= 166,574.2 / 129,779.5

= 0.23.

For the year 07-08

= 126,497 / 129,779.5

= 0.17.

For the year 06-07

= 96,267.3 / 129,779.5

= 0.12.

After calculation of current asset turnover for three years, in the year 06-07 the

ratio was 0.12 but in the year the ratio is increased to 0.17 later it again increased to

0.23. So it is clear that it is positive effect to the company.


2.2 SUMMARY OF FINDINGS:-

After analysis the following points stand out:

1. The entire documentation inventory department in the company is

computerized.

2. Inventory conversion of L&T is much better compared to its Competitors

3. Material planning is done based on orders obtained from different customers.

The materials requirement plan is processed to give exact requirements of

materials to be produced.

4. Vendors are rated based on their performance with respect to delivery, a

quality price standard.

5. The received materials are inspected as per standard plan and finished

products are tested 100% based on material released. They are maintained

and handled properly.

6. Physical verification of high value materials in holding store is conducted in

accordance with pre determined programs.

7. All materials are stored in right condition at respective locations and the

company has materials, which are slow moving and non moving, which are

disposed of at regular intervals.

8. The company has been marinating the accounts perfectly which is audited by

internal and external auditors.

9. The scrap obtained in the process is comparatively very low.

10. Company follows the annual verification of stock and is being re verified by

the company’s statutory auditors at regular intervals.


2.3 SUGGESTIONS:-

Technical audit should be made on raw material, spares to see that it is not over

stocked or under stocked. There should be coordination between production

process and inventory handling department for efficient outcome.

It should also undertake to use various scientific inventory controls such as just

in time.

To reduce the stocking in the finished goods of inventory, the sales department

should be activated. Some new sales techniques should be injected to increase

sales.

The company should follow EOQ to reduce over stocking of materials,

purchases at competitive prices, to reduce the cost of product.

Better co ordination among purchase, production, marketing and finance

department will help in achieving greater efficiency in inventory management.

Company should develop long term relationship with vendors. This would help

in improving quality and delivery.


Chapter – 3

CONCLUSION AND RECOMMENDATIONS:-

The implementation of SAP in LARSEN & TOUBRO (MYSORE) Limited. has

given it a high degree of customization to different scenarios of the business. It is

reaping the benefits of SAP, which are evident in the day-to-day affairs of the company.

SAP has enabled greater degree of co-ordination and communications between

departments and the company as a whole. It can keep the personnel up to date as

information is accessible throughout the company.

The work procedures are being strictly followed. This is possible as SAP has many

inbuilt internal controls which have been highlighted throughout this project.

1. The purchase system of the company involves large hierarchy which should

be minimized so that it will reduce the lead time and inventory holdings, by

using some popular technique which are suitable for L&T i.e. ABC

Analysis, EOQ, JIT.

2. The company should increase distribution channels since the present system

is not sufficient. They have left out some state without distribution channels.

It is recommended to have a consignee type of distribution in the state where

distribution channels are not existing which will reduce the cost of

maintenance of depots, stock holdings of other depots and transportation

costs can be reduced

3. It is suggested for the company to go automation of the organization by

adapting e-commerce techniques like B2B, B2C, communication can be

improved dramatically, since cost and time involved are also reduced.


4. It is suggested to prepare proper demand forecasts, production planning, so

that It in turn reduces the inventory holdings by purchasing important,

necessary and required raw materials.

CONCLUSIONS:-

Inventory is one area where the organization have ample room to reduce the cost.

“INVENTORY MANGAGEMENT” started off with these motives and today has

enhanced leaps and bounds. There are immense like just-in-time (JIT) there should be a

constant watch on the quality and quantity of inventory that has to be maintained by an

organisation to help profit maximization.

While conducting project work I have learned how to collect data for there

research from various data sources. The research work has helped researchers to learn

managements of inventories.


BIBLIOGRAPHY:-

During of my project study I have referred project related topics and I have taken

the concept from the following books and websites.

The same books and websites are as follows:

Financial Management. By – Prasana Chandra. 5th Edition. Tata McGraw-Hill

Publishing Company Ltd.

Financial Management. By – I M Pandey. 8 th Edition. Vikas Publishing House Pvt

Ltd.

Financial Management. By – M Y Khan Jain. 3rd Edition. Tata McGraw-Hill

Publishing Company Ltd.

Production & Operation Management By – K.Ashwathappa, K.Sridhar Bhatt

Management Accounting By – B.G.Sathyaprasad

Advanced Cost Accounting By – B.M. Lallnigam, G.L. Sharma

Problems & Solution in Financial Management By – R.P. Rustagi

WEBSITES

www. larsentoubro .com www.lntemsys.com http://www.lntecc.com/home.htm http://www.lntinfotech.com http://en.wikipedia.org/wiki/Larsen_&_Toubro http://info.shine.com/company/Larsen-Toubro-Limited/865.aspx http://investing.businessweek.com/research/stocks/financials/financials.asp?

ticker=874836 http://money.rediff.com/companies/larsen-and-toubro-ltd/17010013/profit-and-loss http://www.moneycontrol.com/financials/larsentoubro/balance-sheet/LT


http://www.moneycontrol.com/financials/larsentoubro/balance-sheet/LT

http://money.rediff.com/companies/larsen-and-toubro-ltd/17010013/profit-and-loss

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=874836

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=874836

http://info.shine.com/company/Larsen-Toubro-Limited/865.aspx

http://en.wikipedia.org/wiki/Larsen_&_Toubro

http://www.lntinfotech.com/

http://www.lntecc.com/home.htm

http://www.lntemsys.com/

http://www.larsentoubro.com/

Santhosh (Inventory Mgt)1 L&T - Copy

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