GODREJ & BOYCE MFG. CO. LTD.GODREJ & BOYCE MFG. CO. LTD.

SUMMER TRAINING REPORTSUMMER TRAINING REPORTONON

COST REDUCTION AND COST CONTROLCOST REDUCTION AND COST CONTROL(MAY-JUNE 2007)(MAY-JUNE 2007)

SUBMITTED IN LIEU OF THE PARTIAL FULFILMENT OFSUBMITTED IN LIEU OF THE PARTIAL FULFILMENT OF POSTGRADUATE DIPLOMA FOR MANAGEMENT POSTGRADUATE DIPLOMA FOR MANAGEMENT

ATAT

GUIDED BY:GUIDED BY: SUBMITTED BY:SUBMITTED BY: Dr. Anupam Mehta Bhagwant Kaur Dr. Anupam Mehta Bhagwant Kaur

Roll No. 20 Roll No. 20

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ACKNOWLEDGEMENT

I express my indebtedness to Mr. G. Yugandar, (Vice- President - Production) for providing me the opportunity to work in an esteemed organisation like Godrej and Boyce Mfg. Co. Ltd (Appliance Division). I gratefully acknowledge the succor, support and favour extended to me by Mr. Rajeev Sehgal, Manager Finance and my Project Guide Mr. Praveen Sharma, whose continuous supervision, expert guidance, ceaseless motivation and unfailing courtesy stood by me in executing this arduous work from its conception to completion.The purpose of this acknowledgement will be incomplete if I fail to mention the continuous inspiration and support offered by my faculty guide, Ms. Anupam Mehta, who left no stone unturned in enhancing my knowledge, skills and will to achieve the desired target. I also wish to thank all department-heads who in spite of their pre-occupations and busy schedule in the office, left no stone unturned in enhancing my knowledge, skills and will to achieve the desired target.This project has given me the opportunity to work and observe from close quarters, the functioning of one of India’s largest and most prestigious companies. The completion of this project fills me with a sense of achievement and satisfaction.

TITLE PAGE No.

Executive Summary 1-2

Indian Appliance Industry 3-6

Indian Refrigerator Industry 7-9

Introduction to Godrej and Boyce Mfg. Co. Ltd. 10-18

Research Methodology 19-28

Cost Reduction and control under various heads 29-31

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Process Cost Reduction and Control 32-43

Inventory Cost Reduction and Control 44-97

Human Resource Cost Reduction and Control 98-108

Overheads Cost Reduction and Control 109-114

Conclusion 115-116

Limitations 117

References 118

INDEX

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EXECUTIVE SUMMARY

Strategically applied and managed, cost reduction and control is of vital importance to the company. For too many firms, cutting costs is a management priority when business conditions are weak, only to be forgotten when economic growth resumes. But continually increasing operating efficiency is fundamental to success in both good times and bad. In this report, I aim to present an approach to building competitive advantage by reducing costs throughout every aspect of the enterprise.

OBJECTIVES:

1. To evaluate various cost components through inter- functional analysis.2. To apply possible cost control measures.3. To determine areas where reduction in costs is possible and to identify

ways to implement the same.

SCOPE:

The scope of the project is restricted to control and reduction of the costs of Refrigerator and Compressor plant of Godrej and Boyce Mfg. Co. Ltd. located at Mohali, Punjab. It includes study various cost components such as Materials, Labour and Overheads (excluding sales and distribution) of the manufacturing unit.

METHODOLOGY:

The research methodology included exploratory research, data collection and analysis using graphs, tables etc, observations and discussions, finally drawing inferences based on the findings and providing recommendations for the same. Finally, the task concluded with report presentation.

Data Collection Techniques:-

Primary Research Cross functional study and evaluation of various processes in the

company. Visits to other companies producing comparable products or certain parts

of the product for a study of processes and cost involved.

Secondary Research Evaluation of current cost control measures being followed in the plant.

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RECOMMENDATIONS:-

RECOMMENDATION Cost Control (Rs.)

Cost Reduction (Rs)

Remarks

PROCESS

Foaming Scrap 11,20,000 Being Implemented- Team formed

Density of cabinet foaming

37,70,316 Being Implemented- Team formed

Density of door foaming 27,54,548 Being Implemented- Team formed

Brazing instead of lock rings

97,34,400 Quality Issues

TOTAL Rs.1,73,79,264

INVENTORY

Invoice Breakup 2,30,817.1 -

Daily Order Process 4,94,129 Can be implemented

Thermocol Waste 93600 Can be implemented

Obsolete stock disposal 3579869 Shall be implemented

Just In Time Inventory Control

Production ControlPurchase streamlining

Shall be implemented

Work In Progress Control

Dept wise control -

TOTAL Rs.43,98,415

HUMAN RESOURCE

Basic Wage Control Proper daily production planning, reduce absenteeismOvertime Control Proper utilisation of labour, proper planningOVERHEADSCommunication Expense

383522 Being Implemented- Negotiations in process

Tour Expenses Control Department Wise limits

Shall be implemented

Housekeeping Reduce excess employed

Not yet decided

Security Finding alternate Not yet decidedTOTAL Rs.383522

GRAND TOTAL Rs.2,21,61,201

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INTRODUCTION TO

APPLIANCE INDUSTRY

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The Indian appliance industry consists of atleast fifteen white-goods manufacturing plants set-up by seven leading players in the Indian market. The major players in this segment include the Indian stalwarts like Godrej, Videocon and IFB as well a s the multinational giants like Whirlpool, Electrolux, LG and Samsung.

Even though globally the home appliance manufacturing industry is considered as one of the low profiled one, as compared to others like the automotive industry, the Indian appliance industry is currently riding on a growth curve and is catching up fast with most of its global counterparts.

Some of the major strengths of the Indian appliance industry include highly skilled manufacturing and R&D engineers, the capability to roll out new models every six to eight months and the availability of low – cost labour. Also most of these plants are located in tax-incentive areas around two major industrial clusters of Noida and Pune. In addition, the manufacturers are also taking advantage of the various export promotion schemes of the Indian Government like EPCG (Export Promotional Capital Goods scheme) and EOU (Export Oriented Unit) status. Despite these strengths there are still quite a few opportunities for improvement of these manufacturing facilities, so that they can enhance their competitiveness, both globally as well as locally.

The Indian market size for refrigerators was estimated at 4.1 million units in 2004 and the installed manufacturing capacity of these players is above 6.5 million units per annum. Also the washing machines market in india was estimated at 1.45 million units in 2004 while the installed manufacturing capacity is near 3.75 million units. This clearly indicates a much lower capacity utilization for most of the players. The quality of the products manufactured still needs to be enhanced if they are to catch up with global standards. This could partly be due to highly labour intensive operations with low automation and also because of the privilege technology gap. The concept to market time for most of the plants in India is still higher than the global norm and except for LG, exports from India haven’t really picked up as projected. There is still seems to be quite a way to go before India becomes one of the global appliance production and export hubs like China.

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MAJOR PLAYERS:

GODREJ

Godrej is one of the prominent manufacturers of home appliance in India. Its domestic appliances products include refrigerators, washing machines, air conditioners and cooking ranges. Its kitchen appliances are vast such as roti maker, sandwich maker etc. Godrej, an old warehouse, continues to enjoy the most trusted brand status in the Indian market. It increases its product (electronic and home appliances) offerings in the Indian market and increase plant automation to increase efficiency and drive down costs.

SAMSUNG

Samsung India had its head office in Delhi and 19 branches all over the country. It manufactures a comprehensive range of home appliances such as microwave ovens, refrigerators, air conditioners and washing machines. All these products come in various sizes and styles and offer various functions according to consumer need and budget. The company has successfully positioned itself as a technology leader in the Indian market with its target marketing efforts.

IFB

IFB is a niche player in the top end front-loading washing machines segment. The company enters the mass market for washing machines and gradually for other appliances by expanding its production capacity to enjoy the economies of scale and to grow into another Indian home appliance giant.

VIDEOCON

There are number of Home Appliances companies in India among which Videocon is one of them who tops the list. Their domestic products include refrigerators of various types, microwave ovens, mixer grinder, television etc.

Videocon has recently bought out Electrolux’s plants. Even though the company launched innovative products like Washy-Talky washing machines, a fridge with stand-by battery option etc; the company could not crack the Indian market and create a consumer pull for its products.

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LG-LIFE’S GOOD

LG Electronics is a South Korean company and was established in India in 1997. They started their business with manufacturing of Color Television, LG Washing Machines, Air-conditioners and Microwave Ovens and other electronic products.

LG is the current market leader in the Indian appliance industry and has been able to provide the right mix of quality products at affordable prices and marketing pull to the Indian masses. The company is also one of the leading appliance exporters from India. Till date it as gained a reputed name in Indian home appliances industry and serving their customers satisfactorily from past one decade.

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INTRODUCTION TO REFRIGERATION INDUSTRY

IN INDIA

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Refrigerators have been manufactured in India since 1950’s. till the 1980’s players like Godrej, Kelvinator, Allwyn and Voltas controlled almost 90% of the market.

Earlier, the white goods sector was categorized as a luxury goods industry and was subject to oppressive taxation and licensing. The situation changed after the liberalization of the Indian economy in the early 1990s. the government removed all restrictions and now there is no restriction on foreign investment, and licenses are no longer required. Post liberalization, a number of foreign companies entered the market and many domestic players also diversified into refrigerators. BPL and Videocon, who already had a presence in the consumer electronics market, leveraged their strengths to enter the durables sector.

These days many foreign companies have started operating in the Indian market which provide enormous range of features like surround cooling, non-stick clear ice cubes, flat back, handle free design, deodorizing ozone spray, magic shelves, 2-door, 3-door,4-door options, capacity options, attractive colors, different temperature zones for different foods, etc. the major players in the market today are Godrej, Whirlpool, Videocon, IFB, BPL, LG and Samsung are offering a wide range of features like radial flow, permanent deodorizer, direct cooling, versa door, multi air flow, fuzzy monitor, open door alarm, maxi insulation, roll bond freezer, CFC free, flat back, super PUF, humidity control, nutrition preserving system, super X-flow cooling etc. (Business Today, Nov. 7-21, 1997). Every one of these big players wants to have a niche in the market and competition is heating up in this Rs. 700 crore refrigerator market.

In India, refrigerators have the largest aspiration value of all consumer durables, with the exception of television. This accounts for the high growth rate of the refrigerators market. The refrigerators market has been growing at rate of about 15% per year, while the consumer durables industry as a whole has grown at almost 8%.

The size of the refrigerator market is estimated to be 3.5-4 million units approximately, valued at Rs. 50 billion. The domestic penetration rate of refrigerators is about 9%. The penetration of refrigerators is considerably higher in urban areas, which account for 75% of the demand, with rural areas constituting the other 25%, the demand is also higher in the northern and western parts of the country than in the east. The south also has high demand, as the warmer growth of the south requires a refrigerators running throughout the year.

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There are two basic types of refrigerators manufactured in India, direct cool and frost free. Till the 1990s only direct cool refrigerators were used in India. Videocon was the first to introduce the frost-free type. In 2000, the direct cool segment constituted almost 82% of the market, while frost free refrigerators took up the rest. However, of late, the frost-free market ahs been picking up at a faster rate.

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INTRODUCTION TO

GODREJ AND BOYCE MFG. CO. LTD.

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COMPANY PROFILE

Godrej is one of the largest engineering and consumer products company in the country having varied interests from engineering to personal care products with a total sales turnover of about US $ 1.1 Billion. It is one of the most respected corporate houses known for philanthropy and initiation of labor reforms besides being recognized for values of fair, transparent and ethical dealings.

Everyday, every Indian encounters the ‘Godrej’ name sometime somewhere. A person may begin the day bathing with a Godrej soap, shaving with a Godrej shaving cream, storing clothes in a Godrej Store well cupboard, cooking food in a Godrej cooking oil and preserving it in a Godrej refrigerator. Money and valuables are kept in a Godrej safe; work is done on a Godrej computer or typewriter while sitting on a Godrej chair and drinking a Godrej fruit drink.

Innovation has been the key. It is this spirit that has built Godrej and carried it for a hundred years. Taking it into diverse industries ranging from cupboards to soaps, hair dyes to edible oils, and packaged foods to refrigerators. In recent years several partnerships have been formed with international giants like General Electric, Pillsbury, Fiskars and Sara Lee, bringing Godrej membership in the Global village that will carry it forward into the 21st century.

The Godrej group owns vast tracts of land in and around Vikhroli, a suburb to the Northeast of Mumbai, India's commercial capital. Traditionally, this location has been their manufacturing base, but increasingly they have moved significant production facilities inland in search of cheaper pastures.

Godrej has always been a crusader for a better world with programs that benefit endangered forests, wild life and mangroves. Every year the Pirojsha Godrej Foundation dedicates funds towards promoting education, housing, social upliftment, conservation, population management and relief of natural calamities.

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HISTORY

The Company celebrated its centenary in 1997. In 1897 a young man named Ardeshir Godrej gave up law and turned to lock making. Ardeshir went on to make safes and security equipment of the highest order, and then stunned the world by creating toilet soap from vegetable oil. His brother Pirojsha Godrej carried Ardeshir’s dream forward, leading Godrej towards becoming a vibrant, multi-business enterprise. Pirojsha laid the foundation for the sprawling industrial garden township (ISO 14001-certified) now called Pirojshanagar in the suburbs of Mumbai. Godrej touches the lives of millions of Indians every day. To them, it is a symbol of enduring ideals in a changing world.

The spirit of entrepreneurship, the vision of a dynamic tomorrow, and the capacity to build and realize dreams! This is the essence of the Godrej group. No wonder then, Godrej has become the symbol of a vibrant multi-business enterprise touching the lives of millions and at the same time an icon of enduring ideals in a changing world.

Godrej is today's one of the largest engineering and consumer products company in the country having varied interests from engineering to personal care products with a total sales turnover of about US $ 1.1 Billion. It is one of the most respected corporate houses known for their philanthropy and initiation of labor reforms besides being recognized for their values of fair, transparent and ethical dealings. From high tech engineering solution to world-class consumer products, Godrej is an integral part of the lives of millions of Indians. Setting quality benchmarks & redefining customer satisfaction, as Godrej Company enrich lives across boundaries.

INCORPORATION

Established in 1897, the Company was incorporated with limited liability on March 1932, under the Indian Companies Act, 1913.

Board of Directors

J. N. Godrej (Chairman and Managing Director), A. B. Godrej, N. B. Godrej, V. M. Crishna, K. N. Petigara, B. A. Hathikhanavala, F. P. Sarkari, P. D. Lam, K. A. Palia and P. P. Shah.

BUSINESSES

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The Company has the following businesses (with respective ISO certifications), which manufacture and/or market a wide range of consumer durables and industrial products:

Appliances (ISO 9001/14001)

Refrigerators, Washing Machines, Microwave Ovens and DVD Players

Furniture And Interiors: (ISO 9001114001)

Office Furniture, Seating and Desking Systems, Computer Furniture and Open Plan Office Systems, Office and Home Storwels®, Sofas and Recliners, Home Furniture, Filing Cabinets and Filing Systems, Book Stacks and Cases, Sliding/Tambour Door Units, Personal/Industrial Lockers, Customized Storage Systems, Roll-formed Slides and Components for Furniture.

Locks: (ISO 9001)

Padlocks, Cylindrical Locks, Mechanical and Electromechanical door locks and related hardware.

Security Equipment & Solutions: (ISO 9001/14001)

Strong Room Doors, Safe Deposit Lockers, Cash Boxes and Coffers, Data/A TM Safes, Burglary and Fire Resisting Safes, Record & Filing Cabinets, Electronic Coffers, Currency Sorters and Cash Counting Machines, Fire/Security Doors, Fire and Burglar Alarm/Premises Security Systems, Video Door Phones, CCTV System, Access Control Systems.

Prima Office Equipment (ISO 9001)

Office Automation - Photocopiers, Fax, Multifunction devices and Mechanical Typewriters (available in over thirty languages); Conferencing Products and Solutions-Projectors, Video and Teleconferencing Equipment, Plasma Displays and Electronic Print boards; Vending Machines.

Storage Solutions (ISO 9001/14001)

It includes Multiflex and Heavy Duty Storage Systems, Tool Storage Cabinets, Gravity- flow, Mobile and Drive-in System Components, Mezzanine Floors, Cantilever Storage Systems, Workshop Equipment and Special Solutions.

Material Handling Equipment (ISO 9001/14001)

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Forklift Trucks (Diesel, Electric and LPG) and Attachments, Container Handling Trucks, Warehousing and Personnel Access Equipment, Spare Parts, Services and Maintenance Contracts.

Industrial Products (ISO 9001/14001)

Precision Tooling (Press Tools/Plastic Injection Moulds/Vacuum Forming Moulds/Pressure Die-Casting Dies), Special Purpose Machines, High Precision Components/Equipment for Engineering and allied industries, Sheet Metal Working Machines - Sales and Service.

Process Plant And Equipment (ISO 9001, ASME ‘U’, ‘U2’, ‘S’ and ‘R’ Stamps, SQL ‘M’ Stamp China)

It deals in Pressure Vessels, Columns, Reactors, Electro polished Reactors, Shell & Tube Heat Exchangers, Trays, Tower Internals and other Custom-built Fabrication.

Construction And Real Estate (ISO 9001/14001)

Ready Mix Concrete, Construction Projects, Property Development, Horticulture and envirotech Services.

Electrical And Electronics (ISO 9001/14001)

Electrical Power Distribution System, Compressed Air Control System, Electronic Technology Solution Provider (Hardware, Software, Retrofitting, Process Control and Instrumentation, Industrial Automation), Energy Conservation, Electrical Contracts.

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GODREJ APPLIANCES DIVISION

Godrej Appliances Division. Is the one of the leading manufacturer of the refrigerators in India. The company has the experience of over 100 years in this business.

Godrej Appliances Division Set up the Mohali refrigerating unit on 28th Feb. 1996. The factory is located at Sahibzada Ajit Singh Nagar (S.A.S. Nagar), which is an important township of Punjab and has recently emerged as a major venue for setting up a wide range of industries. The spot was well chosen because it is near to Chandigarh, the state capital. The factory was mainly set up by considering future expansion, to feed northern parts of India and in accordance with its export strategies.

A. PRODUCTS

1. GAD manufactures and markets, today; a range of refrigerators from 100 litres to jumbo sized 400 litres. The largest selling is the 170 litres size. The 100 litres baby addresses the need of a small family or a second refrigerator for a growing family. It also addresses the needs of the Institutional and Hotel industry segment. The 300 litres size is the most suitable for the typical large Indian family.

2. Each of the major sizes of the refrigerators is made in different models, primarily created to address the requirements of different segments of customers with differing balance among taste, usage and cost considerations. Cold Gold and Ultra are designed with the taste of the up-market customers, whereas the Classic packs the best value for money for a customer with focus on economy with efficiency and no frills. All the models and sizes are made in a range of colors that reflect the choice of the different segment of customers.

3. Keeping in tune with the changing technology and the distinct needs of the upwardly mobile urban market, GAD has launched four models of Frost-Free (165, 240, 260 and 400) refrigerators using indirect cooling technology. These models also are in tune with the latest styling and taste of softer looks and pastel colors, in harmony with the trend’s worldwide.

4. The range, colors and the models are never static and it is always the tradition of GAD to constantly upgrade the existing products, its range and bring to the market the latest to satisfy the ever changing expectations of customers. The latest model GAL introduced is the Jerry model.

5. GAD also offers a range of washers from semi-automatic twin tub (5 kg & 3 kg) type to fully automatic or Fuzzy logic and Pulsator type single tub models.

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As with refrigerators, the washers are also made available in different colors to suit the taste of the customers. Washers are manufactured at Wing Works.

6. TR window AC’s and 1.5 TR splits. The AC’s are made available with trendy looks (grills) to enhance the interiors and in different colors.

B. DESIGN AND DEVELOPMENT

1. GAD understands that the quality is built into the product rather than just inspected at the end of the production. Towards this end, GAD has a well-qualified and experienced team of design engineers who convert the expectations of the customers into a concrete product. Their knowledge is constantly upgraded through training and exposure as well as access of technology from collaborators. The documented system for design development supports their knowledge, experience and creativity.

2. GAD also out sources product designs, designing activities or aesthetics and styling concepts from experts in India or abroad. Although the specific designing activity may be done by such experts, the larger intent of the design and development requirements are supplemented/ complemented by design verifications, design validations, design reviews and design changes through the in-house Design, Quality, PMQ and NBD teams. Such external experts/sources are approved by Design in consultation with the management with executive responsibility.

C. QUALITY

1. Throughout the design, manufacturing and testing of the appliances total attention is paid to the quality aspects of the product. Besides the incoming inspection coordinated by the Purchased Material Quality Cell (PMQ) and the in process monitoring by line function of manufacturing, the system has built in audits of the product and the processes at different stages by Quality Eng. Dept. to assure quality and provide fast feedback.

2. The End-of-Line Audit (EOLA) offers feedback on continues basis to the manufacturing as regards the quality of the finished products. The Customer Acceptance Test and Customer Usage Test Laboratory give confidence that the products meet functional and reliability requirements. The Life Testing Laboratory for compressor and other appliances/components provides data and facts about the reliability under adverse operating conditions.

3. The facilities are ably supported by a number of laboratories to analyze the material and other inputs. These consist of the Plastic Lab, the Oil and Fresno Lab, Powder Coating Lab, Metrology Lab, Metallurgy Lab, the Calibration

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Lab and Shipping test Lab.

4. The data from the laboratories, tests and the audit feedback is constantly analyzed and corrective and preventive actions are taken to improve the performance of refrigerators in the field and processes that build them in house.

5. The documented system in this Apex Quality Manual spells out, in the following chapters, in elaborate details, the procedures, processes and the system in place to support the quality aspects.

D. MARKETING AND DISTRIBUTION

1. GAD understands that availability and access to the consumers is critical for their satisfaction in this business. 19 branches in five regions with the dealership network of app. 1200 direct dealers and over 3000 retailers support the marketing, selling and distribution across the whole country. The logistics department ensures the physical distribution to feed branches, and they in turn feed the dealer network.

2. The branch and dealer network are also the channels of information to get the feedback on the consumer satisfaction, emerging expectation and the competitive offerings so that the product range and the introduction of varieties of models and colors are in tune with the changing market trends.

E. SERVICE SUPPORT

1. Product in the field, in the hands of the consumers, needs the support of education and training at the time of installation for deriving maximum benefits during use. It is equally essential for the consumers to understand the care and caution to minimize the inadvertent misuse that may lead to product malfunction and possible injury to the users.

2. And should the need arise, the service back up is geared to diagnose and rectify the product problems during and even after the warranty period, either at the user's premises or if required, at the workshop with minimum disturbance to the customers. The service organization is adequately equipped to provide spare parts for the current and prior models in the use in the field through dealers and the branch network. The service set up also provides the training and education support to the dealer network so that they in turn can extend the same level of service to their customers.

3. GAD believes that the field personnel are the important source of information and hence seek their feedback on the product performance on a

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regular basis, which forms the trigger for continuing improvements of the products and the processes.

F. PURCHASING

GAD understands that to be able to satisfy the ultimate consumers, it needs quality inputs from the vendors. Vendors are the partners in this process and therefore, GAD puts considerable emphasis on their development through clear communication, education and early involvement in product development stages, rather than just the monitoring and control through feed back from incoming inspection.

G. PEOPLE

People provide the inner strength to GAD. The organization takes pride in the fact that it has some of the best people in place to achieve the objectives of Technology leadership, quality and market presence. It has in place, a process of recruitment and training to groom the best talent. The welfare of the people is paramount for GAD, accordingly the company has invested substantially in the housing, medical and education support for the employees and their families.

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RESEARCH METHODOLOGY

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Problem Statement

To study various cost components in the company and identify areas where cost-reduction is possible and where cost-control is required, and make recommendations for the same.

Research Design

Exploratory research was conducted to analyse various issues involved in cost reduction and control. The conceptual structure was designed within which the research was to be conducted.

The following objectives were made:-

1. To evaluate various cost components through inter- functional analysis.2. To identify areas where cost-control is required and apply possible cost

control measures.3. To determine areas where reduction in costs is possible and to identify

ways to implement the same.

Procedure followed

1. Study of various processes carried out in different departments.2. Observations were made and discussions were carried out with the

department heads and supervisors.3. Information from records and data for costs of each department was

sought from department executives. 4. Problems were identified and reasons were found out for the same

through interviewing the persons responsible.5. The data and information was analysed and was linked with the

observations and discussions.6. Recommendations for the problems were made and suggestions for

suitable methods of implementing the same for cost reduction and control were given.

7. An attempt was made to analyse the feasibility and applicability of recommendations given through discussion and feedbacks of the project guide and the department heads.

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Data Collection Techniques

Primary Research

Cross functional study and evaluation of various processes being carried out within the company to identify areas where cost reduction is possible and also determine possible cost control measures.

Visits to company producing comparable products or certain parts of the product for a study of processes and cost involved.

Based on study of data and information for year 2006-2007

Secondary Research

Evaluation of current cost control measures being followed in the plant. Analysis of data available with the firm regarding the cost components-

material, labour and overheads.

Data Analysis

The analysis was done of each cost component- material, labour and overheads with the help of financial facts and figures available. On the basis of results, observations and discussions, the inferences were made.

Cost Control Tools Employed-

Just In Time Inventory Control, Working Capital Management, Work in Progress analysis, observations and discussions, interviews, analysis of financial data through graphs, tables etc.

Steps undertaken:-

1. Study of Production Process

(CHART 1 – Pg 25) First step was to study the production process. This was undertaken to get an in depth understanding of procedure involved in production, working of different departments of production, materials used at different levels of production, labour employed, levels of efficiency and utilisation of resources, degree of automation, interdependence between processes, bottlenecks at various levels etc.

This was helpful not only to identify areas with scope of cost reduction and control within the department but also formed a ground for study of other

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functions like purchase, human resource planning, finance etc. and their interdependence, hence enabling cross functional analysis of cost.

The following procedure was adopted for the purpose of the study-

i. The first step was to carry out an unstructured interview with the senior manager, production in order to get an overview of production procedure, processes involved, costs incurred etc.

ii. The next few days were spent at the shop floor, where an in- depth study of the production process was done through observations and inputs from the supervisors and department heads.

iii. Next I identified areas where there was excess cost due to rework and defectives, deviation from standards etc. These areas are- CF dept, DF dept, Powder coating, RFA dept.

iv. Discussions were carried out with the persons responsible and feedback was taken for the same.

v. Inputs were taken from other departments such as human resource department regarding skilled and unskilled labour, training and development etc., finance department regarding overheads and other financial implications etc for cross functional analysis of costs.

vi. A visit was made to Mongia & Co. (Mfg. Co. Ltd.) which is a locally based company, engaged in production of deep freezers, air conditioners etc. The purpose of the visit was to get a better understanding of production process, and to understand the brazing process.

vii. Underlying problems behind these high costs were determinedviii. Recommendations along with ways of implementation were given for

controlling costs in these areas and also for reducing cost wherever possible.

ix. Feedback was taken regarding applicability of the recommendations.

2. Study of Inventory Cost

(CHART 2- pg 26 )

Next study of stores department was made in order to study the scope of cost reduction and control in inventories. Inventories form a major portion of costs in a manufacturing concern. The purpose was to find out costs involved in form of cost of inventory, its quantitative and financial aspects, working capital involved, costs such as carrying costs, wastages, etc. It also involved study of cost control methods and cross functional analysis of cost keeping in view interdependence between various departments such as production, HR, etc.

The following procedure was adopted for the purpose of the study-

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i. I began with an unstructured interview of the senior manager, stores, regarding the functions of the stores department, processes involved, current cost control measures and a detailed discussion about the functioning of various groups under the stores dept- supply management, line management, supplier, LMR, TPL, Direct Purchases

ii. Secondly, financial data and information was collected from persons responsible for various groups under stores

iii. Problem areas were identified on the basis of the interviews, discussions, observations and analysis of the data provided. These are- LMR, 3PL, obsolete stock, WIP, wastes etc.

iv. Recommendations were made and their implementation methods were given after taking inputs from other departments such as production, HR, etc. as the implementation involves continuous involvement of these departments as well.

v. Various cost control tools used are-

Just In Time inventory control Work in progress analysis Working Capital analysis Obsolete stock control Wastage reduction etc.

3. Study of Human Resource Department

(CHART 3- Pg 27)

Next, study of human resource department was conducted in order to find out the functions of the human resource department, types of direct labour employed, training and development, incentives given, overtime, efficiency of labour, costs due to labour, current cost control methods etc.

The following procedure was adopted for the purpose of the study-

i. Unstructured interview of manager, HRD regarding the functioning of the HR department, inputs regarding labour employed, requirement during various periods in the year, overtime, incentives, information about the managerial staff.

ii. Financial data and information was collected from the HR departmentiii. The data provided was analysed using graphs, tables etc. iv. Problem areas were identified – basic wage fluctuation, overtime, training

and development.v. Discussions were carried out with the persons responsible and also with

other department heads such as of production, stores etc.

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vi. Recommendations and ways to implement the same were given.

4. Study of Overheads

(CHART 4- Pg 28 )

Next step was to study the overheads excluding the selling and distribution expenses which were beyond the scope of the project. This was done to find out the different overhead costs, costs contributing most to overall cost and also to determine overhead costs with scope of cost reduction.

The following procedure was adopted for the purpose of the study-

i. Interviews and discussions with the finance head and heads of other departments

ii. Collection of data from the finance department regarding overheads.iii. Analysis of the financial data through graphs, tables etc.iv. Determining the areas where overhead costs were more and finding

reasons for the same.v. Identifying areas where cost reduction is possible- Communication, Tour

expenses, Housekeeping expenses, etc.vi. Giving recommendations and ways to implement the same.

Report Presentation

In this step the task is report preparation, presentation and implementation of the report, major findings and recommendations coming from the study. The compilation of data was done, conclusions were made and recommendations were submitted.

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CHART 1

29

METHODOLOGY

STUDY OF EACH DEPARTMENT

OBSERVATIONS AND DISCUSSIONS

RECOMMENDATIONS

PROBLEM IDENTIFICATION

VISIT TO MONGIA & Co.

CF & DF DEPT SCRAP DUE TO

FOAM SEEPAGE

FOAM DENSITY VARIATION

POWEDER COATING DEPT – REWORK COST

UNUSED LOADING BELT

SCRAP REDUCTION

CF & DF DENSITY

CONTROL

BRAZING INSTEAD OF LOCK RINGS

RFA-DEPT USE OF LOCK RINGS

PRODUCTION PROCESS

CHART 2

30

METHODOLOGY

STUDY OF PROCESSES IN STORES DEPT ANALYSIS AND

PROBLEM IDENTIFICATION

LMR-PRODUCTION

LOSS

3PL OBSOLETE STOCK

RECOMMENDATIONS

WIP

NO COST CONTROL METHOD

PURCHASE PROCESS

SIZE OF INVOICE

SUPPLIER RELATIONS

JIT APPLICATION

INVOICE BREAK UP

OBSOLETE STOCK

WIP CONTROL

PRODUCTION CONTROL

PURCHASE STREAMLING-

ORDERING METHOD

WASTE REDUCTION – THERMOCOL

STORAGE

INVENTORY

CHART 3

31

HUMAN RESOURCE

METHODOLOGY

STUDY OF WAGE COMPONENTS

RECOMMENDATIONSSTUDY OF MANAGEMENT

REMUNERATION

BASIC WAGE FLUCTUATIONS

OVERTIME TRAINING NAD DEVELOPMENT -

SCRAPS AND REWORK COST

STUDY OF CURRENT COST CONTROL

METHODS

PROBLEM IDENTIFICATION

CHART 4

32

METHODOLOGY

DATA COLLECTION

ANALYSIS OF INFORMATION

COMMUNICATION EXPENSES

TOUR EXPENSES

HOUSE KEEPING

PROBLEM IDENTIFICATION

RECOMMENDATIONS

NEGOTIATIONS WITH SERVICE

PROVIDERS

DEPT WISE LIMITS

REDUCE EXTRA LABOUR

OVERHEADS

COST REDUCTION AND CONTROLUNDER

VARIOUS HEADS

33

Strategically applied and managed, cost reductions and control is of vital importance to the company in order to gain competitive advantage as well as improve upon its profitability through proper reduction and control of its cost without compromising on quality and value.

For too many firms, cutting costs is a management priority when business conditions are weak, only to be forgotten when economic growth resumes. But continually increasing operating efficiency is fundamental to success in both good times and bad. In this report, I aim to present an approach to building competitive advantage by reducing costs throughout every aspect of the enterprise. Organisations need to adopt a strategic approach to cost reduction that generates near-term cost savings while at the same time builds a more efficient operating model over the long term. Firms that use cost reduction to create a leaner, more efficient organization will not only survive the current difficult economic conditions, but will also prosper throughout all phases of the business cycle.

A Strategic Approach to Cost Reduction and Control-To reap these benefits, firms need to take a strategic approach to cost reduction with the following characteristics:

Comprehensive approach- Analyzing the entire organization for cost-cutting opportunities.Sustainable Cost Savings- Increasing efficiency by rethinking both what the firm does and how it does it.Phased Implementation- Initiatives include both quick wins and longer-term measures that are more difficult to implement but offer greater cost savings.Senior Management Commitment- An essential ingredient is the full commitment of senior management, which can best be demonstrated by appointing a prominent senior executive to lead the effort.

Firms that are prepared to make the commitment to a strategic cost reduction program can not only generate short-term cost savings, they also build long-term competitive advantage by creating leaner, more efficient operations. Firms that integrate an ongoing search for increased efficiency into their business cultures will be those that emerge as leaders in the years ahead

34

Cost reduction and control in Godrej has been done under the following heads:-

COST REDUCTION AND CONTROL

Production Process

Inventory Human Resoure

Overheads

35

COST REDUCTION AND CONTROLIN

PRODUCTION PROCESS

36

PRODUCTION DEPARTMENT

The production department is responsible for catering to the market demand through compliance with the monthly production schedules by the marketing department.

My first task was to gain an insight into the functioning of the production department at different levels of production and to study the production process. Observations were made regarding materials used in different departments, labour employed, degree of utilisation of labour and material, capacity utilisation, productivity and efficiency of labour, defectives etc. Discussions were made with the department heads. Supportive information and financial data was collected and inferences were drawn. Finally, areas with scope of cost reduction and control were identified, recommendations were made and their feasibility was discussed with the department heads.

The following is the description and study of production department of Godrej and Boyce Mfg. Co. Ltd.

37

PLANT LAYOUT

RFA-2

RFA-1

EVACUATION

TESTING QUALITY

38

PRESS SHOP

POWDER COATING

CABINET FOAMING-2

VF-2

CF-1

VF-1

DF-1 DF-2

VF-3

DESCRIPTION OF VARIOUS DEPARTMENTS:

PRESS SHOP:

Press shop is the first department in the production floor. It marks the beginning of the process of making the refrigerator. Various processes like edge binding, punching are carried out on side panels, main door, cabinet back and table top for final assembly.

POWDER COATING:

For powder coating the main components are the refrigerator side panels, main door, cabinet back, table top which are loaded on the conveyor belt for pre chemical treatment.

It is mainly a phosphate process, which involves making up of a phosphate layer on the parts. After passing out through the different stages of PCT the parts are passed through water drying oven. This dries of the water from the parts. Before sending the parts for powder coating they are visually inspected to see if there is any defect. Next step involves passing of parts through PC booths where negatively charged powder at the 100 KV is spread on them by reciprocating powder spraying guns. This is followed by powder curing of the parts in the powder curing oven.

VACUUM FOAMING:

This shop is used to manufacture liner of the refrigerator i.e. the inner portion of the refrigerator. The raw material for this is the high impact polystyrene sheets.

CABINET ASSEMBLY:

In this the cabinet or the body of the refrigerator is fitted on the line. The body is made of sheet steel. These sheets are worked in press shop to have requires shape and size. The cabinet is joined with side panel’s body and covered with paper. Wire is also fitted for electric connections etc.

CABINET FOAMING:

In this section the foam is filled at the backside of the liner. This helps in forming an insulating layer between the liner and the side panels.Chemical which is used in this process is:

39

POLYLOL + CYCLOPENTANE = POLYMIX POLYMIX + ISOCYANATE = POLY URETHANE FOAM

DOOR ASSEMBLY AND FOAMING:

Various operations performed in this department are as follows:Powder-coated doors are received from powder coating shop. After proper bending of the sheets, top and bottom channel fitment is done which is followed by Lock Fitment. Taping is done on gasket. The foamed door goes to the Inspection stage. After proper inspection, it is sent to screw fitment line where screwing is done after placing the assembled PDP on the door.

REFRIGERATOR FINAL ASSEMBLY LINE:

In this stage of the process refrigerator is assembled with different components.

QUALITY DEPARTMENT:

After RFA refrigerators are send to quality department for quality check, if it adhere to quality standards then it is finally dispatched otherwise corrective steps are taken.

40

FINDINGS

The following are the findings in the production process as a result of in depth study of the process, observations at the shop floor, and discussions with the department heads and supervisors.

1. PRESS SHOP:

Discussion was mainly on the following point: Material used: Steel sheets, Pre-coated sheets Process: Various processes like edge binding, punching are

carried out on side. Panels, main door, cabinet back and table top for final

assembly. Defects : Dent and scratches Reasons:

Due to roller on machine Manual problem Rubber is not there on the conveyor belt due to which dent

takes place. Solution for minimizing defects: Proper maintenance of machines

2. POWDER COATINTG:

Material used: Chemical and Powder

Process: It is mainly a phosphate process, which involves making up of a phosphate layer on the parts. After passing out through the different stages of PCT the parts are passed through water drying oven. This dries of the water from the parts. Before sending the parts for powder coating they are visually inspected to see if there is any defect. Next step involves passing of parts through PC booths where negatively charged powder at the 100 KV is spread on them by reciprocating powder spraying guns. This is followed by powder curing of the parts in the powder curing oven.

Defects: Spots mainly in red colour Reasons: Red Powder Solutions: Rework

3. CABINET FOAMING:

41

This is one of the most important stage of process where if there is any defect then the whole cabinet is scrapped which leads to loss of Rs 700 per refrigerator. Defects (void): 1. Foam seepage (this is mostly a manual problem where the

foam looses its elasticity. 2. Chemical mixing

POLYLOL + CYCLOPENTANE= POLYMIX (poly:cyclo = 100:14), this is done manually.POLYMIX + ISOCYANATE= POLY URETHANE FOAM, this is done through machines.Pouring rate: 908 g/secTotal foam : 2.5 kg (on an average per refrigerator)

Density of foam which is required in cabinet foaming varies from 30-37 gm/ litre. There is a direct relationship between density and material required.

Generally they are working on the density of between 34 and 35 on an average.

Other Defects: 1. Wrong pasting of the tape/foam sticker. (This leads to void in cabinet foaming)

2. Dents Reasons: Manpower and lack of inspection of manpower. Solution: Job rotation

4. DOOR FOAMING:

Powder-coated doors are received from powder coating shop.After proper bending of the sheets, top and bottom channel fitment is done which is followed by Lock Fitment.Total foam: 900 gm on an average

5. RFA:

Process:

Various operations are performed: Base Plate Fitting Hinge bottom fitting Inverting the body Stitching and table top belt Hole drilling in liner

42

Slab and sticker Back-Sheet fitting Thermostat fitting Bulb fitting Evaporator fitting Compressor fitting Condenser fitting Clamps fitting and turning Lock rings: Used at the following places in condenser:

o Suction

o Ecthc

o Discharge

o Drier condenser

o High side sealing

o Charging sealing: on this punching is done.

6. QUALITY:

Inspection is done on following places: Press Shop: First piece inspection Powder Coating: Petrol Audit Cabinet Foaming: Petrol Audit 100% inspection is being done on RF1 and RF2 and also on Cabinet

Foaming. LD 1, LD2, LD3 (Used for checking leakages) Charging and plugging are also checked at various points.

8. Visit to Mongia and Company:

Mongia & Co. (Mfg. Co. Ltd.) is a locally based company manufacturing deep freezers, air conditioners etc. I visited Mongia & Co.’s plant to gain more knowledge about use of Brazing and Lock ring. This was done to know the pros and cons of using brazing and lock ring.

43

ANALYSIS AND RECOMMENDATION:

After going through all the above mentioned processes I have identified following areas where there is scope for cost reduction:

1) FOAMING SCRAP REDUCTION:

Six sigma project was undertaken and targets were fixed i.e. to have one defect per shift but there are approximately 5 defects per shift. It means that there are 10 defects per day which is leading to high costs. These defects are there mainly because of void and the reason for the same are as follows:

Foam Seepage- manual problem

Chemical Mixing (manual problem)

Temperature Setup: It is because of the climatic conditions. Temperature has to be maintained between 20-28 degrees which is done through oven and chillers. Temperature is being displayed and if it goes up and the workers forget to switch on the chiller it could lead to problems. If there is any problem in foaming then alarm gets on and many time workers are not aware of the exact reason for the same.

2) USE OF BRAZING IN PLACE OF LOCK RING:

Godrej is using lock ring in its condensers for sealing the gases. This is much more costly than a method called brazing which is used by other manufacturers Use of Brazing in place of Lock Ring will not affect quality if done properly.Use of Brazing requires skilled labour and it is fool proof method. Lock Ring requires proper dimensions otherwise lock ring will not fit properly on the pipe which can lead to leakage, which is not the case with Brazing.

3) DENSITY:

Density of foam required in cabinet foaming varies between 30-37 gm/ ltr. Normally they are working on the density of 34-35. If this density could be reduced to 32 by keeping other things same then it would lead to saving of cost of material without affecting quality in anyway. Same applies for door foaming also.

44

4) ENHANCEMENT OF QUALITY:

We can improve the quality without increasing the cost by using PU paint instead of powder coating. Some of the motor companies are using it and the extra cost which will be incurred by using PU paint will be offset by reduction in wastage due to its usage.

45

RECOMMENDATIONS:

1. Foaming Scrap:If we could reduce wastage to 2 per day which is the target then we can save the cost in the following way:

Number of scraps daily: 10 per day Total working days in a year: 208 days Due to the wastage there is loss of Rs 700 as the whole cabinet is

rejected if there is any defect. Total costs save if scraps could be reduced:

8*208*700= Rs 11, 20,000

Implementation:

Special training should be provided to unskilled workers. Six Sigma should be implemented. Proper inspection should be there. Job rotation for employees.

2. Density of cabinet foaming:

Range of density: 30-37 gm/ ltr. Normally they work on the density of 34-35gm/ltr. Total material used is 2.5 kg Cost of the material is Rs 96.21 If the density could be reduced to 32 gm/ltr then the cost can be reduced

by: (96.21*2.5)/34.5= 6.97 per gm

6.97*208*2600(daily production) = Rs 37,70,316

3. Density of Door Foaming:

Total material used: 900 gms (.900*96.21*2)/34= 5.09 per refrigerator

5.09*208*2600= Rs 27, 54,548

46

Assuming that other surrounding conditions like temperature etc are normal.

Implementation: Proper training should be given to the workers so that they can control

surrounding temperature through operating chillers and ovens as and when required.

4. Loading Belt:

This should be removed as it is continuously being run without any load and it also poses difficulty in detecting fault.

Yearly maintenance charges and electricity charges would be saved.

5. BRAZING IN PLACE OF LOCK RING:

Cost of Brazing per point is 50 paise Cost of Lock Ring per point is 5 Rs which includes both material and

labour cost. Lock ring is used on 5 points which are:

a. Suctionb. Ecthcc. Discharged. Drier condensere. High side sealing: Brazing cannot be done here.

Total costs saving:

Rs 4.5 per point could be saved by doing brazing in place of lock ring4.5*4*2600*208= Rs 97, 34,400

Implementation:

Skilled labour is required so specialized training should be given. Leakage checking should be fool proof and needs to much more effective. Most leading refrigerator manufacturers are using brazing.

TOTAL COST REDUCTION THROUGH PRODUCTION PROCESS:If all the above mentioned points are implemented cost reduction in total will be Rs 1,73,79,264

47

COST REDUCTION AND CONTROLIN MATERIAL

48

Inventory Control

The advent of modern industrialization has in its wake highlighted a number of management problems, an important one of which is cost reduction and control. the cost of material accounts for nearly more than 50% of the total cost in production, material s are procured and stocked in the shape of inventories. It is , basically ,necessary to hold inventories such as raw material ,WIP and finished goods to act as a cushion between supply and demand, both of which will normally fluctuate to facilitate steady and efficient plant operation and to enable the firm to meet the market demand and to keep the manufacturing cycles going smoothly with least interruption effectively controlled inventories can contribute substantially to a concerns profit. Thus, the cycle of production is made up of materials in flow and a corresponding finished goods outflow, the intermediate stages being the holding of stock of raw material , holding of goods in process and the stock of finished goods,

The game of inventory management aims to attain a healthy balance between cost of inventory and cost of not having it( cost of stock out). On the one hand , it might lead to overstocking and on the other hand , it could lead to principle of JIT , the concept of no stocking but getting material ‘just in time to meet schedule’

Current cost control methodsABC

Manufacturing organizations find it useful to divide material into 3 categories for the purpose of material control. An analysis of the material cost will show that a smaller percentage of of items of materials in the stores may contribute to a large % of the value of consumption and vice a versa

FSN

• The classification is based on rate of consumption of the items with respect to the Receipt and inventory of the item. ( Fast , Slow Moving and Non moving )

• This is used to decide the review of the inventories to increase the stock deplete the stock or disposal of the stock.

49

STORES DEPARTMENT

The stores department of the company is responsible for maintaining an adequate level of inventory at all times, ensuring the material is supplied on line for production in a timely fashion. It coordinates the supply chain between the company and its suppliers. It ensures there is no excess inventory lying with the company and also applies various tools for cost and quality control of inventory in the plant.

The stores department of Godrej is divided into five different groups on the basis of various roles and responsibilities in the department. The groups and their respective responsibilities are as follows:-

1. LINE MANAGEMENT GROUP

The line management group is responsible for ensuring that the raw material is fed on line, to different production departments in time.

It also ensures that the material is fed at proper intervals and there is no shortage or excess at any level of production.

It takes care of receipt of material at the gate, checks the material for defects and also maintains direct contact with the production department and takes feedback regarding any problems encountered with the material supplied.

2. SUPPLY MANAGEMENT GROUP

The supply management group is responsible for taking inputs from the production department regarding the production plan for the coming month.

Then on the basis of this production plan, the group finds out the quantity of material required through a software called EBARK which not only gives the estimate of quantity of various raw materials required for the production but also gives feedback regarding the quantity of inventory currently available at the plant and hence the net amount to be ordered.

The group then forms a schedule regarding the daily budgeted requirement and gives it to the third part logistics 15 days in advance, on the basis of which the order is placed with the supplier.

It is also responsible for intimating any change in the daily production plan to the third part logistics and ensuring flexibility in the supply of material to suit the changing production requirements.

50

It further is responsible for applying various cost and quality control measures for proper inventory management.

3. SUPPLIER

The supplier forms a major part of the inventory supply chain. An important aspect taken care of by the department is managing and developing supplier relations.

The stores department ensures that the requirement is being timely fulfilled by the supplier. It also takes corrective actions in case of defaults if any.

The supplier maintains direct contact with the third party logistics which supplies it the details regarding the month’s requirement and the supply schedule.

In case of any default on the part of the supplier in providing adequate quantity or quality of material, the supplier transfers the material to the plant through the fastest mode of transportation and bears the cost as well.

4. THIRD PARTY LOGISTICS(3PL)

Third party logistics is one of the most critical elements of supply chain at Godrej. 3PL is overall responsible for the suppliers that fall beyond area of 80kms from Godrej.

The functions of 3pl is as follows-

ORDER MANAGEMENT- the 3pl takes production schedules and the material requirement schedules from the supply group and communicates the same to the supplier. It ensure that the order is being supplied by the supplier.

SINGLE TRANSPORTER- the 3pl is solely responsible for the

transport of material from the suppliers beyond 80 km to it’s warehouse and then transfer this material from the warehouse to the plant. The payment for transportation is made variably, on basis of distance covered, weight of material or the volume of material.

ONLINE FEEDING- the 3pl is responsible for feeding the material at different production departments onc it has reached the plant premises.

51

BUFFER- the 3pl maintains buffer stock of raw material equivalent to the material requirement during the transit period, in its warehouse that is located at three kilometer from the plant.

STORAGE- the 3pl stores the material at its warehouse till the need arises at the plant and bears the carrying costs for a fixed payment of .04% of invoice amount.

Most of the material under the 3pl is the A class items

5. LOCAL MILK RUN

The function of LMR is to collect the material required for production from the suppliers and supply it at the plant on a daily basis.

Route Mapping of LMR

Total No of local Suppliers on LMR 17 Total no of routes 5

Terms and conditions:

Once pickup truck to be provided by Godrej. Fixed timing for loading and movement of truck and movement of truck, to

be acknowledged by supplier. Short quantity supplied to be intimated by driver and to be supplied by

supplier same day on his own. Defective material to be replaced by the supplier. ROUTES:-

52

DERABASSI

CHD 3 CHD 2

CHD 1

MOHALI

GODREJ

ROUTE 2 CHANDIGARH 1

53

WALIA

MILLTECH

MUSAFIR

GODREJ

GREWAL

PAUL & PAUL

STARTING P

UNITED ENGG

AUTOFABS

3M TOOLS

GODREJ

1130

1210

1230

12551310

1200

13301400

STARTING POINT

Route- Chandigarh 2

SARK

GREWAL

CAPITAL

GODREJ

0900

1000

1015

10301115

1000

13301400

STARTING POINT

54

Routes- Chandigarh 3

SN ENGG

GODREJ

1200

14301500

1300

STARTING POINT

Route- Derabassi

LAXMI

PANPLAST

KAMAL

GODREJ

1430

1630

1650

17401800

1550

08000900

JAYEN

BHARGAVA1715

1600

1620

1820

STARTING POINT

6. Direct Purchases-

1. The direct purchase refers to those materials that are procured directly by the Head Office, Mumbai.

2. This is purely a corporate decision.3. The materials under this group are mainly Class A items. Example- Steel,

Imported pre coated sheets, Diesel, etc.4. These materials are ordered in bulk for all manufacturing units together.5. The lot size is also large.6. Quality assurance7. This helps the company in getting the best prices in the market.8. It enables hedging.

55

ANALYSIS AND RECOMMENDATIONS

1. Local Milk Run-

Local Milk Run (LMR) is an important aspect in management of inventory in Godrej.

Benefits:

Supplier discipline and sense of responsibility Quantity assurance. Fixed time of material receiving. Better planning. Control on last minute stock out. JUST IN TIME inventory control applied. Less transportation cost due to same route and proper planning. Defects easily noticeable due to small lot size. Easy replacement, as suppliers are locally located. Less Working Capital required. Easy tracking of order status

PROBLEM IDENTIFICATION-

PRODUCTION LOSS –

Although efforts have been made to utilise the services of LMR to the fullest, which have contributed in managing the locally available material supply to a large extent; There still exists certain loopholes within this process which lead to an increase in the costs due to inventory. These are as follows:-

56

Production Loss (in mins)- LMR

0

50

100

150

200

250

300

Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar

2006-07

Tim

e in

min

s

LINE 1

LINE 2

Reasons:-

1. Breakdown at supplier end.2. Improper production planning by supplier.3. Lack of flexibility of supplier to provide for production variations at Godrej.4. Transportation problems- breakdowns.5. Defective material.

Recommendations:-

1. Godrej must identify frequently defaulting suppliers and should create an alternate supplier base.

2. Flexibility in supply.3. Improving Supplier relations.4. Production must be streamlined.

57

2. Third Party Logistics-

The monthly schedules as well as the daily production plans are forwarded to the third party logistics (Om Logistics).

Om Logistics then gets in touch with the outstation suppliers and informs them about the monthly requirement.

Om Logistics also maintains a buffer stock sufficient for Godrej to use during the period of transit and also acts as a safety stock in case of any variations due to production or supplier problem.

Whereas the third party logistics maintains contact and coordination regarding the supplies with the outstation suppliers, and ensures there is no shortages at any time

The stores department at Godrej is required to contact the third party logistics and communicate any changes in requirements etc.

The third party logistics in return charges a fixed amount of 0.04% of the invoice amount for its services of stocking the material, maintaining contact with the suppliers, feeding the material online, etc.

In addition to this, the cost of transportation of material from the supplier to third party logistics warehouse is borne by Godrej.

Benefits

Saving in communication cost. Insulation against labour cost, diesel cost etc. Tracking of transportation status of orders. Representatives in almost all cities where suppliers are based.

PROBLEM IDENTIFICATION:-

1. NO PROPER INVENTORY COST CONTROL METHOD 2. PURCHASE PROCESS-

The major problem with this system of procurement is that the purchase procedure is not streamlined.

There is no set pattern of picking up invoices from the third party logistics.

This hinders proper management and control of inventory. Due to this the facility of third party logistics is not being utilised to

the best.

58

The inventory cost of Godrej increases significantly as the interest is charged on the inventory lying idle at the shop floor.

This leads to storage problem as the space at the plant is limited.

3. SIZE OF INVOICE-

The size of the invoice is large. This is not supportive to any excess production in a day as it would require another large invoice to be picked up from the third party logistics, for a small amount required.

The excess inventory lying at the shop floor would be subject to interest charges as the credit period will be reduced.

59

Recommendation:-

1. INVOICE BREAKUP

Assumption- only 170 Lts. Refrigerator is being manufactured in this plant.Calculation for Working Capital :(Blocked)I am calculating working capital (Blocked) for Refrigerator Plant on the basis of working capital of One Roll Bond.When we are picking invoice on a daily basis from 3PL.

On the Invoice of 1000:DAY 1 DAY2 DAY3

Opening Stock of RB   898 701  Budgeted Production 1000 1000 1000  Actual Production 1102 1197 1009  Excess Production 102 197 9  Excess Invoice Required 1000      Closing Stock of RB 898 701 692  Cost of one Roll Bond 333.86 333.86 333.86  Working Capital(Blocked) per unit of Roll Bond(Rs.) 299806.3 234035.9 231031.1 254957.8Interest Rate       0.13Interest Amount       33144.51Working Capital( Blocked)       354213.1

On the invoice of 500:

Opening Stock   398 201  Budgeted Production 1000 1000 1000  Actual Production 1102 1197 1009  Excess Production 102 197 9  Excess Invoice 500      Closing Stock 398 201 192  Cost of one Roll Bond 333.86 333.86 333.86  Working Capital(Blocked) per unit of Roll Bond(Rs.) 132876.3 67105.86 64101.12 88027.75Interest Rate       0.13Interest Amount       11443.61Working Capital( Blocked)       123396

Savings because of breaking up of Invoice 230817.1

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JUST IN TIME (JIT) INVERNTORY CONTROL SYSTEM

The rationale behind JIT inventory system is that it reduces the carrying cost significantly in as much as raw material arrives at the firm exactly when it is required for the production process. The philosophy of JIT control system implies that the firm should maintain a minimum (zero level) of inventory and rely on suppliers to provide material just in time to meet the requirements. The traditional inventory system on the other hand requires maintaining a healthy level of safety stock to provide protection against uncertainties of production and supplies.

There are broadly two aspects of JIT-1. Just in time production2. Just in time purchasing

JIT aims to produce and deliver finished goods just in time to be sold, sub assembled just in time to be assembled into finished goods, fabricates parts just in time to go into sub assembles and purchased material just in time to be transformed into fabricated parts.

OBJECTIVES:-

1. Minimum/ zero inventory and its associated costs.2. Elimination of non value added activities and all wastes.3. Minimum batch/ lot size.4. Zero breakdowns and continuous flow of production.5. Ensure timely schedules both inside and outside the firm.

STEPS IN JUST IN TIME IMPLEMENTATION

PRODUCTION CONTROL

PURCHASE STREAMLINING

MINIMISING BUFFER/SAFETY STOCK

MINIMISING WASTES AND NON VALUE ADDING ACTIVITIES

61

1. PRODUCTION CONTROL

A. MONTHLY PRODUCTION CONTROL-

Planned vs. Actual

0

10000

20000

30000

40000

50000

60000

Month

Un

its

of

refr

iger

ato

r

Planned Production '06-'07

Actual Production '06-'07

62

63

The monthly production trends reveal that the actual production exceeds the budgeted production every month, except in the month of February 2007, wherein the actual production is 3% lower than the budgeted production due to In the remaining months, the excess production varies between 1% upto 85% of budgeted production.

Reasons for excess production-

The reasons given for such variation is that the production level is adjusted to the changes in the demand pattern as communicated by the marketing department.

IMPACT-

As the production plan is not accurate and the fluctuation is very high, therefore it is difficult to send accurate schedules to the suppliers, which may lead to delays.

Also it is difficult to streamline the process of ordering the material as the requirement is uncertain.

It also increases the buying cost of the material.

Recommendations-

1. IMPROVE DEMAND FORECASTING- Since the actual production exceeds the budgeted in almost all the

months it can clearly be stated that the demand forecasting needs to be more accurate and should take into consideration the fluctuation in demand.

The production process should be flexible enough to accommodate slight variations in demand, but a regular trend of low estimate demand estimate needs to be taken care of.

The production excess is maximum during the peak seasons of July and August. The market forecasting must consider this aspect and create more buffer in schedules.

2. SUPPLIER RELATIONS-The supplier relations must also be developed in a way that they can provide material for seasonal variations in production, so that the demand can be met.

64

B. DAILY PRODUCTION CONTROL:-

Actual vs. Planned Daily Prouction

0

500

1000

1500

2000

2500

3000

3500

1 2 3 5 6 7 8 9 10 12 13 14 15 16 17 19 20 21 22 23 25

June 2006

Un

its Planned Daily

Actual Daily

Actual vs Planned Daily Production

1350

1400

1450

1500

1550

1600

1650

1700

1750

1800

1850

1900

1 3 4 5 6 7 8 9 11 12 13 14 15 16 18 19 20 21 22 23 25 26 27 28 29

September 2006

Un

its Planned Daily

Actual Daily

65

Actual vs. Planned Daily Production

0

200

400

600

800

1000

1200

1400

1 2 4 5 6 7 8 9 11 12 13 14 15 16 18 19 20 21 22 23 25 26 27 28 29 30

December 2006

Un

its Planned Daily

Actual Daily

Actual vs. Planned Daily Production

0

500

1000

1500

2000

2500

3000

March 2007

Un

its Actual Daily

Planned Daily

The above given samples of daily actual vs. planned production, one from each quarter, reveal that the daily production varies from the planned daily production.

There is no particular trend followed for the level of daily production.

66

The daily production mostly exceeds the planned production. In certain cases it falls below planned production level, but the trend is to

produce excess units of refrigerator per day.

Reasons:-

For excess daily production:-1. Proper utilisation of labour employed. The productivity of labour had

increased and low level of production would lead to more idle human resource.

2. Production level is kept more than planned in order to hedge against breakdowns.

For low daily production:-1. Breakdowns.2. Improper production planning.

Effect:-

1. Material purchase can not be streamlined as the material is to be picked up from the third party logistics as per the invoices, which have been determined on the basis of planned production.

2. Improper coordination with supplier.3. The material, once it reaches the premises of Godrej, is subject to interest

charges, as that is the beginning point of its credit period. Hence, Godrej would have to bear the interest charges on the entire additional invoice even if the production exceeds by a small number. Hence working capital of Godrej is stuck.

4. This also increases the carrying charges of Godrej and the facility of Third party logistics remains underutilised.

Recommendation:-

1. The daily production must be controlled and there should be a definite trend of production to be adhered to strictly.

2. In order to hedge against unavoidable breakdowns, the trend should be such that the planned production for the first few days should be kept higher so that any loss can be covered up.

3. Events of breakdowns must be reduced and should be looked into.4. In order to take care of proper utilisation of human resource, the number

of labour employed and the overtime must be looked into as the labour employed is sufficient to produce more than the planned production, then there is scope of reduction of no. of labour employed or in the amount of overtime. This way not only excess cost will be reduced, there would also be more consistency in productivity.

67

2. PURCHASE STREAMLINING

The ordering process at Godrej does not follow any pattern and needs to be streamlined.

Excess material is picked up from the warehouse of third party logistics due to which adds to the stock of inventory at the Godrej Premises.

Due to this more working capital gets stuck in inventory. Godrej has to bear the interest charges on this stock of mateial.

It increases the carrying cost of raw material. Also the third party logistics is being paid 0.04% of the invoice amount

for stocking the material at its warehouse and bearing the carrying costs. Also the credit period of materials begins once the material reaches the factory premises.

Therefore, the facility of third party logistics remains under utilised and above this additional cost is being incurred. Also there is no control over inventory levels to be maintained.

ALTERNATIVE METHODS OF ORDERING-

In order to determine the cost saving through change in the pattern of picking up invoices from the third party logistics, i am comparing the interest cost under 4 plans :-

1. Monthly2. Fortnightly3. Weekly4. Daily

Material Selected:- EPE Foam Insulation Month selected:- November 2006 Quantity required:- 12000 units Amount (in rupees) :- Rs. 28320 % age of total cost of material- .08% (considering only 3PL material)

1. MONTHLY COST CALCULATION:- Total Quantity Required- 12000 units No. of orders- 1 Quantity per Order- 12000 units Rate of Interest- 13% Daily requirement- 462 units Interest of month for EPE- Rs 1913 (applied on sum total of balance RM remaining at end of each day for the

entire month)

68

Total Annual Interest Cost- Rs. 2391889

2. FORTNIGHTLY COST CALCULATION- Total Quantity Required- 12000 units No. of orders- 2 Quantity per Order- 6000 units Rate of Interest- 13% Daily requirement- 462 units Interest of month for EPE- Rs 993.87 (applied on sum total of balance RM remaining at end of each day for the

entire month) Total Annual Interest Cost- Rs. 1242333

3. WEEKLY COST CALCULATION- Total Quantity Required- 12000 units No. of orders- 1 Quantity per Order- 3000 units Rate of Interest- 13% Daily requirement- 462 units Interest of month for EPE- Rs 536.9 (applied on sum total of balance RM remaining at end of each day for the

entire month) Total Annual Interest Cost- Rs. 671125

4. DAILY COST CALCULATION- Total Quantity Required- 12000 units No. of orders- 1 Quantity per order- 462 units Rate of Interest- 13% Daily requirement- 462 units Interest of month for EPE- Rs 141.6 (applied on sum total of balance RM remaining at end of each day for the

entire month) Total Annual Interest Cost- Rs. 176996

Plan Qty/ Amount Cost Total Cost COST SAVING

69

Invoice (Rs.) (EPE) (over daily cost)Monthly 12000 28320 1913.51 2391889 2214893fortnightly 6000 14160 993.87 1242333 1065337Weekly 3000 7080 536.9 671125 494129Daily 462 1180 141.6 176996 -

Therefore, it is recommended for Godrej stores department to pick up invoices from the third party logistics on daily basis as this would lead to minimum interest cost of Rs.176996.Hence, by implementing the same minimum cost saving of Rs. 4,94,129 can be achieved.

RECOMMENDATION- DAILY ORDERING PROCESSMINIMUM COST SAVING- Rs. 494129

3. MINIMISING BUFFER/ SAFETY STOCKS

70

3PL Transit Days 2007-08

3.0

1.0

6.0

5.0

3.0

6.0

7.0

5.0 5.0

2.0

5.0 5.0

0.0

6.0

1.0

5.95.5

4.1

4.7

6.8

4.2

4.8

1.9

5.4

4.34

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Days

April'06 3.0 1.0 6.0 5.0 3.0 6.0 7.0 5.0 5.0 2.0 5.0 5.0 0.0

April'07 6.0 1.0 5.9 5.5 4.1 4.7 6.8 4.2 4.8 1.9 5.4 4.3 4

Aligarh BaddiBangal

oreDaman

Gw alior

Hyderabad

Kolkata

Mumbai

Nasik NCR PUNE VAPI Jaipur

a. The transit period variations need to be controlled which would help reduce the requirement of safety stock which is being maintained in order to cover up for delays in transit of material.

b. Efforts should be made to reduce the transit period to the minimum so that the buffer stock can be reduced.

c. By doing so, Godrej can also switch to maintaining a buffer for the number of days required for transportation through the fastest mode i.e. Air transportation in order to provide for certain rare unforeseen risks of delay. This would help reduce the working capital stuck in buffer and safety stock and would also reduce carrying cost on such stocks.

4. MINIMISING WASTES AND NON VALUE ADDING ACTIVITES

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1. Packing standardisation:-

At Present- Quantity per pack ordered is not uniform.

Effect- Time is consumed by the labour to unpack, count and segment the material as per the online requirement. This leads to increase in overall labour cost.

Recommendation- Standardize quantity in each pack uniformly. Smaller items can be packed in multiples of the standard quantity.

2. Thermocol wastage:-

Average thermocol scrap per shift per day- 5 unitsCost per unit- Rs. 45Total cost of wastage per day- Rs. 450Total Annual Cost- Rs. 93600

Reasons- Place allocated for thermocol storage is not adequate. Breakage during transportation because of improper packing. Breakage due to mishandling while loading, unloading and feeding

online. Recommendations-

Thermocol packing: The thermocol should be brought to the plant, packed in reusable boxes. Thermocol should be fed online in these boxes only. These boxes will be resent to the suppliers for repacking of fresh stock.

OBSOLETE STOCK DISPOSAL

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W/H Item Code Desc. Closing Stock

Closing Stock

BRA 97729904 1148*520*.35 GPSP PANEL 150 9131 430,983BSM 97701786 LINER SHELF FULL BEVR 205 COKE 4738 290,013BSM RMS97723529 DCAL COKE 205/215 2176 286,927BRA 97729910 503*390*.35 GPSP TTOP 150 TD 5755 271,348BRA 97717023 400*350*.2 GP PL STIFNER 150L 6008 267,176BRA 97729914 885*422*.2 GPPLAIN BACK 150 4480 222,746S10 REV97726265 ROLL BOND PANEL 150 826 217,965R00 97726115 HIP LINER 1180*540*3.0 150 L 150 25,703S15 97729914 885*422*.2 GPPLAIN BACK 150 2564.3 127,495BSM 97716539 DCAL COKE 300 484 86,418BSM 97701787 LINER SHELF HALF BEVR 205 COKE 2526 81,893BSM RCS43099669 GAS R-134A HFC 184.66 67,094BSM 97700327 MASTERBATCH PP RUBY RED 220 53,803BSM 97732044 DECAL FR DOOR FROOTI 390 52,233BSM 97732045 DECAL FR SIDE LH FROOTI 390 45,252BSM 97732046 DECAL FR SIDE RH FROOTI 390 45,252BRA RCN97726263 MCC READY CONDENSER 150L 280 32,603R00 97727761 HIPS PLTZ PDP 1160*525*1.7 150 250 18,210BSM 97709248 MASTERBATCH PP B.RED 72.5 18,808R00 97727762 HIPS PLTZ SHEET 1210*540*3.0 450 63,239BSM 44162669 KEMKOTE3125/CORLITEC90X P-S25 200 12,918S11 RGK97718795 TOP/BTM GSKT FR 260DD DC 490MM 780 10,514R00 RCN97726264 OCC 150 ON LABOUR JOB 85 2,667BSM RMS97728007 FREEZE PACK BACK 200 LT 418 9,886BSM RMS97732590 DECAL PARLE 100 LT LH 90 8,987BSM RMS97732591 DECAL PARLE 100 LT RH 90 8,987S11 RMS97718796 SIDE GSKT FR 260 DD DC-1088MM 300 8,976BRA RMS97726444 DCAL PEPSI 300 40 8,354BSM 97730382 MASTERBATCH PPCP CANDY RED 23 7,967BSM RMS97732589 DECAL PARLE 100 LT FRONT 90 7,937BSM RMS97728006 FREEZE PACK SIDE - L.H.200 LT 395 7,390BSM 60001425 Nitric acid 25 7,348BSM 97720593 MASTERBATCH PP CAR. RED 22.5 6,587BRA 97721803 EPC POWDER EMERALD GREEN 40 6,104BSM 97721804 EPC POWDER RUBY RED 40 6,104BRA RMS97726874 BOTTLE RET STRIP W/O PRINT 150 1600 5,616R00 RGK97726911 READY DOOR GASKET 150L 102 6,783BRA 97710829 EPC CARREBIAN RED 40 5,400BRA RMS97726351 FIGURED GLASS 150L 630 5,160BSM 97713218 EPC POWDER SILKY GREY 40 5,058BSM 44161774 KLINOL7S/COROLINS201/DEG.S-55 197 4,791S11 RGK97726903 TOP/BTM GASKET 443mm 150L 792 4,261

BSM 97715546TOUCH SPRAY SILKYGRY 211 300GM 36 3,929

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BSM RMS97728004 FREEZE PACK BOTTOM 200 LT 99 3,794BSM 97720142 TOUCH SPRAY-211 P. BLUE 300 GM 33 3,753BRA RPA97726935 THERMOCOLE BOTTOM 1 PC 150L 100 3,511BSM 97731982 DECAL APPY 170 SIDE 30 3,478BRA RPA97728674 BOTTOM COVER 510*586 150L 3PLY 933 3,247BRA RMS97726873 BOTTLE RET STRIP 321mm-150L 1236 3,164BSM RMS97728005 FREEZE PACK SIDE - R.H.200 LT 151 2,825BSM 97713322 MASTERBATCH PP SILKY GREY 30 2,779BRA 97726348 PDP STIFNER 150L 356 2,752BRA RPA97726937 ANGLE BOARD 40*40*3 596mm 150L 1204 2,709BSM 44137380 EPC BRILLIANT RED 20 2,631BSM RMS97729133 PLUG FR T TOP TD CHAMP CDY GRE 10402 2,601BSM RMS97726445 DCAL PEPSI 205/215 16 2,439BSM 97721567 TOUCH SPRAY RUBY RED 300G 21 2,331BSM 97721570 TOUCH SPRAY BRIGHT RED 300G 20 2,288BSM 44162672 FIXODINE 50-CF/CATALYST-C890 17.5 2,164BSM 97700330 MASTERBATCH PP E.GREEN 15 2,083BSM 97731981 DECAL APPY 170 DOOR 15 1,902BRA RMS97727033 RUBBER SPACER FR EVAP DR 150L 1860 1,879BRA RMS97725863 FRZ. DOOR HINGE BRACKET 150L 841 1,707BRA RMS97726227 PAPER SET CAB 150 175 1,496BSM 97732081 DECAL FROOTI DOOR 300LT 7 1,348BSM 43040492 COROFIL NC 10 1,277

BSM 97721569TOUCH SPRAY EMEROLD GREEN 300G 11 1,220

BSM 97732075 DECAL FROOTI SIDE RH 300 LT 7 1,119BSM 97732082 DECAL FROOTI SIDE LH 300LT 7 1,119BRA RPA97726938 ANGLE BOARD 40*40*3 520mm 150L 425 961BRA RMS97728573 COMP BASE PLATE 150L LG COMP 23 856BSM RMS97724840 DCAL AMUL 205/215 5 678BRA RPA97726934 THERMOCOLE TOP 1 PC 150L 20 630BSM RMS97728025 HINGE PIN NYLON MATRIX TALLDR 500 330BRA RMS97717272 PLUF FR TBL TP FRN PC CARB RED 1000 230BRA RMS97732777 PLUG FR T TOP 150 CDY GRY 225 158BRA 97729897 942*665*.45 GPSP DR 170 CH TD 13575 647,527.50

Analysis:-

Total obsolete stock costing Rs. 3579869 has been lying idle with the stores department.

74

Effect:-

1. Working Capital of Rs. 3579869 is stuck in such inventory which can be recovered and put to alternate use.

2. Carrying cost is being incurred on such material.3. The stock is also subject to depreciation and spoilage which would further

deplete it’s value over time

Recommendation:-

It is recommended to dispose off the obsolete stock at the earliest. Cost saving- Rs. 35,79,869

If a model’s production is being stopped permanently due to certain reasons, then the material inputs which have no alternative usage must be disposed off at the earliest at the earliest so that financial cost as well as carrying cost can be saved.

Reporting to higher management must be improved.

Department Wise Work In Progress Analysis

75

WIP of refrigerator plant is divided into 10 departments: Cabinet Foaming

Door Foaming

Evaporator Section

Injection Moduling

Maintenance

Powder Coating

Press Shop

Quality

Refrigerator Final Assembly

Vacuum Foaming

I took the data of all the departments but I could get data October 2006 to March 2007. So I analyzed the data and studied the trend and practices of individual departments. Then I had conversation with respective supervisors regarding WIP and its deviation in their respective departments.

WIP is divided into two categories named raw material and Manufactured. Material which has been issued from stores but lying on shop floor is treated as raw material whereas any material on which some work has been done comes under manufactured WIP. The manufactured item are valued on the cost of raw material with labour overhead of a constant percent of raw material. I have taken the percentage of April 2006 in my analysis which is 15% for loading the manufactured WIP and analyzed the data of loaded WIP for getting correct picture.

In the following pages a brief introduction, WIP items, WIP data and the comments are given for every departments. And then the suggestions are given to control the Work In Progress at each level of production.

1.Cabinet Foaming:

76

CF receives cabinet components i.e. side panels and top bottom from Powder Coating and Liner from Vacuum Foaming. In Cabinet assembly cabinet components are assembled with liner. After that OCC wire and bottom piece are fitted in between the side panels. Then assembled cabinet is transferred to cabinet foaming area. Then in the machine these are filled with a chemical which turns into foam. After foaming the cabinet assembly starts, firstly the base plate is fixed then legs are fixed and then the cabinet is moved to RFA line.CF has following items in its WIP:

Item Code Description WIP W/H

P7600114100 CHAMP RDY S PANEL ASSLY LH 42 CFI

P7600113100 CHAMP RDY S PANEL ASSLY RH 42 CFI

P7600111100 CHAMP READY CAB BTM PIECE 365 CFI

RMS97727135ANGLE CABINET REAR 476-150L 620 CFI

RCN97726264 OCC 150 ON LABOUR JOB 19 CFIRMS97726227 PAPER SET CAB 150 135 CFI97720961 OCC 250 ON LABOUR JOB 33 CFI97721367 PAPER SET 250 382 CFIP7600136 300 MAIN LINER ASSLY 3 CFIP7600135 300 READY CAB BTM PIEC 60 CFIRMS53190215 CORNER GUSSET 300 3 CFI97713873 OCC 300 ON LABOUR JOB 3 CFI97729736 T&B 0.40X87X633 300L C.RED 78 CFI

97729737T&B 0.40X87X633 300L SAM.GREY 312 CFI

97729735T&B.40X87X479 100/150L B.RED 228 CFI

97729733T&B.40X87X479 100/150L M.BLUE 100 CFI

97729732T&B.40X87X479 100/150L M.GOLD 160 CFI

P7600014 170/180 MAIN LINER ASSLY 39 CFI

P7600013170/180 READY S PANEL ASSLY LH 118 CFI

P7600012170/180 READY S PANEL ASSLY RH 118 CFI

P7600241 170/180 READY SLIDE 1 CFI

P7600009170/180/215 READY CAB BTM PIEC 783 CFI

77

RMS97727136ANGLE CABINET REAR 528-180L 2210 CFI

97713882 OCC 180 ON LABOUR JOB 865 CFI97701417 PAPER SET CAB 170/180 785 CFI

97729725T&B.4X87X531 170 TO 250 B.RED 728 CFI

97729728T&B.4X87X531 170 TO 250 C RED 1042 CFI

97729727T&B.4X87X531 170 TO 250 C.BLUE 460 CFI

97729729T&B.4X87X531 170 TO 250 EGREEN 391 CFI

97729730T&B.4X87X531 170 TO 250 R RED 200 CFI

97729726T&B.4X87X531 170 TO 250 S.GREY 607 CFI

97729731T&B.4X87X531 170 TO 250 SMGREY 20 CFI

P7600080 205/215 MAIN LINER ASSLY 35 CFI

P7600082205/215 READY S PANEL ASSLY LH 213 CFI

P7600081205/215 READY S PANEL ASSLY RH 213 CFI

97720267 OCC 200 ON LABOUR JOB 719 CFI97701418 PAPER SET CAB 200 250 CFI30206955 CONDENSOR CLAMP 3500 CFI

97716655CORNER SUPPORT BRACKET 1.6CR 3250 CFI

30204005 REAR SUPPORT FRAME (LH) 6 CFI30204018 REAR SUPPORT FRAME (RH) 6 CFI

40067652SUCTION LINE STICKER PE TYPE 2000 CFI

97729929CORNER SUPPORT PLATE 120*65 RH 1200 CFI

97729930CORNER SUPPORT PLATE 120*65 LH 1200 CFI

5072077ZINC PASSIVATED M6 X 20 SCREWS 1700 CFI

RHW49002636MS HEX FL HD BOLT ZN PLD M6 X 20 14650 CFI

91027016 BOPP TAPE 3" - BROWN 104 CFIRMS91108452 BROWN SEALANT TAPE 1.5" 152 CFIRHW45008434 MASKING TAPE 1" 132 CFI

78

ZHW40070964 CELLO TAPE 3" 24 CFI

Data of WIP in CF:Particulars 0ct06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07CF 209220 362121 520227 1071711 912455 704868Production In units

35691 25043 24728 45450 47253 54641

Comments by supervisors-

1. This department makes cabinet which is a very expensive item and costs Rs 700 per refrigerator. So WIP in this department is very significant.

2. This department control WIP on the basis of space available. CF has two lines. Line 1 can store 80 cabinets and Line 2 can store 60 cabinets. They make cabinet till the space is full.

3. Next shift require cabinets for startup so every shift needs to keep these required stock of cabinets.

4. In the beginning of every shift and every time after changing mould First Piece Inspection is done, this takes around half an hour. So they need to keep some extra cabinets in buffer to handle that.

2. Door Foaming:

79

Powder Coating delivers Door Sheets and Vacuum Foaming delivers Plastic Door Panel (PDP) to DF. DF puts gasket into PDP. Door assembly is also put on the door sheet and PDP. After door assembly Door Sheet and PDP are sent to Foaming Machine. In this machine Foaming chemical is put in inner of door panel, as soon as it starts spreading liner is put over it. The foamed door after inspection is sent to RFA line via conveyor belt.

DF has following item in its WIP:

Item Code Description WIP W/HP7600117 100 CHAMP DOOR COATED 23 DFIP7600393 150L DOOR COATED 38 DFI

P7600510 180 MATRIX TALL DOOR COATED 65 DFI

P7600522 215 MATRIX TALL DOOR COATED 53 DFI

P7600523 250 INFINITY TALL DOOR COATED 26 DFI

P7600141 300 CG DLX DOOR COATED 4 DFI

P7600177 170 CHAMPION DOOR COATED 46 DFI

P7600445 170 NO.1 TALL DOOR COATED 47 DFI

M7600615 RDY DR BOTTOM CHNL CHAMPION PP 165 DFI

M7600616 RDY DR TOP CHANNEL CHAMPION PP 154 DFI

M7600610 RDY DR BOT CHNL 170 NO.1 TD PP 32 DFI

M7600647 RDY DR TOP CHNL 170 NO.1 TD PP 35 DFI

M7600628 RDY DR TOP CHNL TD 180-250 PP 1114 DFI

M7600629 RDY DR BOTM CHNL TD 180-250 PP 1116 DFI

RMS97728015 COVER FOR LOCK TALL DR S GREY 201 DFI

RMS97728018 SPACER FR CHNL MATRIX TALLDR 1665 DFI

RMS97728019 LCK CYL-1 MATRIX TALLDR CHRM 1350 DFI

RMS97728020 LCK CYL-2 MATRIX TALLDR 1450 DFIRMS97728021 LCK BTM CAP MATRIX 3576 DFI

80

TALLDR

RMS97728025 HINGE PIN NYLON MATRIX TALLDR 1350 DFI

RMS97728152 LOCK LEVER 180 MATRIX TALL DR 1979 DFI

RMS97728536 COVER FOR LOCK TALL DR SS 826 DFI

RMS97728644 COVER FOR LOCK TALL DR R RED 129 DFI

RMS97728645 COVER FOR LOCK TALL DR E GREEN 30 DFI

RMS97729054 COVER FOR LOCK TALL DR CDY RED 1165 DFI

RMS97729630 COVER FOR LOCK TALL DR CDY BLUE 214 DFI

65569999BUSH FOR M6 BOLT-DOOR HANDLE 3900 DFI

4026378 BTL SHELF SLIDE-300G 3500 DFIRMS97709981 LOCK BODY 170 ECONOMY 1000 DFI4024840 LCK CLIP-P5/P6 1300 DFI

97709767LOCK BODY CG/CGDLX PLATED 400 DFI

RMS97725647 LOCK ASSY MAZAK 1000 DFIRMS97725995 END PIECES OF LOCK 1000 DFI

56190647WELD GASKET READY 170/180 LC 35 DFI

97710760 WELD GASKET READY 200 LC 35 DFIP7600099 215 PDP ASSLY WITH GASKET 78 DFIP7600044 180 PDP ASSLY WITH GASKET 65 DFIP7600167 250 PDP ASSLY WITH GASKET 3 DFI

P7600021 170 CHAMP PDP ASSLY GASKET 26 DFI

Data of WIP in DF:Particulars 0ct06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07DF 149152 3231322 178931 338284 219017 220531Production In units

35691 25043 24728 45450 47253 54641

81

Comments by supervisor:

1. On 1 of every month production starts early whereas stores issue material a bit late so on the last of previous month more material has to be issued which increase the WIP.

2. Sometimes there is a short run in next line because of which the concerned department does not pick material and it comes under WIP. When the next run of same model comes only then they pick up the material.

3. Sometimes few model become obsolete and its production is stopped then also WIP increases in an uncontrollable manner.

4. Sometimes door are made on the requisition of service department. But they don’t take delivery on time.

5. This department gets defected doors for rework for which they always need to keep 4 or 5 PDP’s which increase WIP.

3. Evaporator Section:

Evaporator is the heart of the refrigerator. It is located at the top of the cabinet of the refrigerator. it is the only component, where refrigerator cooling effect is produced. It is responsible for the cooling. In a layman language evaporator is called as a freezer. The evaporator sheets, made of aluminum are bought from the vendor. These sheets have a properly designed path or circuit for the flow of

82

the refrigerator. These sheets brought from outside are subjected to powder coating process. This process includes many sub-processes i.e. Degreasing, Hot Water Rinsing etc. then these sheets go for final evaporator assembly where few processes are done on it to make it a complete evaporator. These evaporators are then delivered to RFA line.

ES has following item in its WIP:

Item Code Description UOM WIP W/H4025496 CU TUBE 3.5" EAC 520 ESI30205552 ALUMINIUM HEADER LC EAC 205 ESI45330063 AL WIRE 3/32" KG 0.2 ESI81689765 CU CUT PCS 8" EAC 2230 ESI97704982 AL SUCT LINE 885MM 165L LC EAC 870 ESI97719831 ROLL BOND PANEL FOR 170LT EAC 550 ESI

97720819PVC HEAT SHRNK SLEEVE 1000MM EAC 500 ESI

97721658ROLLBOND PNL 200LPNCH+PNT+SUCT EAC 140 ESI

97721660ROLLBOND PNL 300LPNCH+PNT+SUCT EAC 104 ESI

97721922AL BK 170L LC+PUNCH+BEND+COAT EAC 40 ESI

97721923AL BK 200L LC+PUNCH+BEND+COAT EAC 226 ESI

97721925AL BK 300L LC+PUNCH+BEND+COAT EAC 86 ESI

97722011AL BK 100L 1/2 LC+PNCH+ BND+CT EAC 23 ESI

RBC97725533170L AL BACK WITHOUT COATING EAC 25 ESI

RHW30100257 COPPER WIRE TINNED 20G KG 36 ESIRHW53239314 AL FL HD RIVETS 1/4 X 1/8 KG 6.5 ESIRMS40618227 DEFROST INDICATOR SET SET 1550 ESI

RMS61710074PVC HEAT SHRINK SLEEVE 430MM EAC 3300 ESI

97715431HEAT SHRINK SLEEVE - 740 mm EAC 3400 ESI

RMS97709815EPE FOAM INSULATION SLEEVE 350 EAC 660 ESI

RMS97717391 CU CAPILLARY 49.5 PSI 8 FEET EAC 3814 ESI

REV97725469170L CLINCHED EVAPORATOR ASSLY EAC 39 ESI

83

RMS57902111 CABLE WIRE TIE 100 MM EAC 2950 ESIRMS61495560 CABLE TIE 150MM EAC 550 ESIRCS45300297 CU PROTECTIC ROD KG 1 ESIP7600003 170/180 READY EVAP ASSLY EAC 1028 ESIP7600075 205/215 READY EVAP ASSLY EAC 378 ESI

P7600107100l READY EVAPORATOR ASSLY EAC 61 ESI

P7600131 300 READY EVAP ASSLY EAC 62 ESIP7600160 250 READY EVAP ASSLY EAC 21 ESIP7600297 275 READY EVAP ASSLY RB EAC 11 ESI

Data of WIP in ES:Particulars 0ct06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07ES 131842 292502 552967 633118 623739 993373Production In units

35691 25043 24728 45450 47253 54641

Comments by supervisor:

1. It is a basic department which stays one step ahead of the main refrigerator line. So it needs to maintain WIP.

2. Since it is a basic department so it has to keep 70/80 evaporators prepared for the next run.

84

3. Every shift has to keep 30/40 evaporators ready for the next shift because startup takes some time.

4. If any new model comes then it must maintain extra material for that model along with the current model.

4. Injection Molding:Refrigerator consists of some plastic components also i.e. top and bottom door channels, chillers, tray flap, drain pan, table top having control knob, apron. These components are molded in this section. There are 7 injection-molding machines, by using these machines above mentioned components are manufactured.IM has following items in it WIP:Item Code Description UOM WIP W/H94213164 PP Powder KG 11050 IMI40610429 GPPS Powder KG 18760 IMI40600316 HIPS Powder KG 10136 IMI97721404 MB Black KG 132 IMI97722720 MB LG White KG 451 IMI97709248 MB B Red KG 164 IMI97713322 MB S Grey KG 100 IMI97729107 MB Cdy Blue KG 230 IMI97722893 MB SS KG 178 IMI97700327 MB Ruby Red KG 226 IMI97729023 MB Cdy Red KG 228 IMI97725728 MB Metallic Gold KG 26 IMI97725727 MB Metallic Blue KG 23.5 IMI97700330 MB E Green KG 39 IMI

Data of WIP in IM:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07IM 3743628 5740406 1750989 5012407 5525229 4610771Production In units

35691 25403 24728 45450 47253 54641

85

Comments by supervisor:

1. In slack time this department need to keep the tools which cannot be returned to the supplier.

2. It increases the WIP because in slack time production is less so these tools are not into finished goods and are kept lying on the shop floor.

5. Maintenance:

Maintenance department is liable for smooth operation of all the departments in the shop floor. It performs both breakdown maintenance and preventive maintenance. Preventive maintenance is perormed on Sundays. It does not have any WIP of itself. All the WIP is of the respective departments it serves.MNT has following items in its WIP:

Item Code Description UOM WIP W/H

97713103CYCLOPENTANE ISOPENTANE-75:25 KG 8000 MNT

97904593 POLYOL FR NON CFC KG 3150 MNT

99999764ISOCYANATE/MDI DIPHENYLEMTHANE KG 3375 MNT

RMS97705901 CARE 30 GAS KG 11000 MNT

86

Data of WIP in MNT:

Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07IM 2898251 4382525 3097552 7242912 5662799 4814090Production In units

35691 25403 24728 45450 47253 54641

Comments by supervisor:1. Baan Reporting is not correct.

2. All the WIP reported does not belong to Maintenance. All WIP of different department is put in maintenance but it really belong to other departments.

3. Their WIP should not be more than Rs. 4 lakh on a given date.

6.Powder Coating:

After press shop steel sheets are sent for powder coating. Powder Coating includes pre chemical treatment, surface prepration and then coating with required plastic powder. In this process the cabinet components are loaded on a over head conveyer, firstly these components are subjected to pre chemical treatment which involves following things:

Grease RemovalChemical Removal

87

Surface PreprationZinc Phosphating

After the coating process the cabinet components are subjected to pass through the powder coating owen. In this owen the cabinet components are subjected to have contact with hot air temprature of around 250 C so that the sprayed powder gets uniformly layered and firmly sets on the surface of the cabinet components. After these processes components pass through inspection and then it goes for coding for assembly.

PC has following items in its WIP:

Item Code Description UOM WIP W/H

P7600114100 CHAMP RDY S PANEL ASSLY LH EAC 42 CFI

P7600113100 CHAMP RDY S PANEL ASSLY RH EAC 42 CFI

P7600111100 CHAMP READY CAB BTM PIECE EAC 365 CFI

RMS97727135ANGLE CABINET REAR 476-150L EAC 620 CFI

RCN97726264 OCC 150 ON LABOUR JOB EAC 19 CFIRMS97726227 PAPER SET CAB 150 EAC 135 CFI97720961 OCC 250 ON LABOUR JOB EAC 33 CFI97721367 PAPER SET 250 EAC 382 CFIP7600136 300 MAIN LINER ASSLY EAC 3 CFIP7600135 300 READY CAB BTM PIEC EAC 60 CFIRMS53190215 CORNER GUSSET 300 EAC 3 CFI97713873 OCC 300 ON LABOUR JOB EAC 3 CFI97729736 T&B 0.40X87X633 300L C.RED EAC 78 CFI

97729737T&B 0.40X87X633 300L SAM.GREY EAC 312 CFI

97729735T&B.40X87X479 100/150L B.RED EAC 228 CFI

97729733T&B.40X87X479 100/150L M.BLUE EAC 100 CFI

97729732T&B.40X87X479 100/150L M.GOLD EAC 160 CFI

P7600014 170/180 MAIN LINER ASSLY EAC 39 CFI

P7600013170/180 READY S PANEL ASSLY LH EAC 118 CFI

P7600012170/180 READY S PANEL ASSLY RH EAC 118 CFI

88

P7600241 170/180 READY SLIDE EAC 1 CFI

P7600009170/180/215 READY CAB BTM PIEC EAC 783 CFI

RMS97727136ANGLE CABINET REAR 528-180L EAC 2210 CFI

97713882 OCC 180 ON LABOUR JOB EAC 865 CFI97701417 PAPER SET CAB 170/180 EAC 785 CFI

97729725T&B.4X87X531 170 TO 250 B.RED EAC 728 CFI

97729728T&B.4X87X531 170 TO 250 C RED EAC 1042 CFI

97729727T&B.4X87X531 170 TO 250 C.BLUE EAC 460 CFI

97729729T&B.4X87X531 170 TO 250 EGREEN EAC 391 CFI

97729730T&B.4X87X531 170 TO 250 R RED EAC 200 CFI

97729726T&B.4X87X531 170 TO 250 S.GREY EAC 607 CFI

97729731T&B.4X87X531 170 TO 250 SMGREY EAC 20 CFI

P7600080 205/215 MAIN LINER ASSLY EAC 35 CFI

P7600082205/215 READY S PANEL ASSLY LH EAC 213 CFI

P7600081205/215 READY S PANEL ASSLY RH EAC 213 CFI

97720267 OCC 200 ON LABOUR JOB EAC 719 CFI97701418 PAPER SET CAB 200 EAC 250 CFI30206955 CONDENSOR CLAMP EAC 3500 CFI

97716655CORNER SUPPORT BRACKET 1.6CR EAC 3250 CFI

30204005 REAR SUPPORT FRAME (LH) EAC 6 CFI30204018 REAR SUPPORT FRAME (RH) EAC 6 CFI

40067652SUCTION LINE STICKER PE TYPE EAC 2000 CFI

97729929CORNER SUPPORT PLATE 120*65 RH EAC 1200 CFI

97729930CORNER SUPPORT PLATE 120*65 LH EAC 1200 CFI

5072077ZINC PASSIVATED M6 X 20 SCREWS EAC 1700 CFI

RHW49002636MS HEX FL HD BOLT ZN PLD M6 X 20 EAC 14650 CFI

89

91027016 BOPP TAPE 3" - BROWN EAC 104 CFIRMS91108452 BROWN SEALANT TAPE 1.5" EAC 152 CFIRHW45008434 MASKING TAPE 1" EAC 132 CFIZHW40070964 CELLO TAPE 3" EAC 24 CFI

Data of WIP in PC:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07PC 299804 201345 358358 319059 554750 552639Production In units

35691 25403 24728 45450 47253 54641

Comments by supervisor:

1. Main material for this department is powder which is a high cost item.

2. Powder consumption is not constant in porduction. Sometimes it takes lesser and sometimes it takes more than standard quantity. And the difference is significant.

3. Powder cost around Rs. 130 per Kg. and varaince per run can ve up to 500/600 Kgs. It increases unnecessary WIP in the department.

4. Short run is a big problem. Due to shrot run ready items keep lying in their warehouse and unwanted and unneeded WIP is created.

90

5. On the requirement of service department small quantity of any speicific powder if required but powder comes in large packets and lesser quantity is not issued by stores.

7.Press Shop:

This is the first step of making refrigerator. here flats sheets are given desired shapes to make body of refrigerator i.e. cabinet and door. Here seven components are made:

Side panel

Back sheet

Door

Bottom piece

Table Top

Side Pallet

Top and Horizontal Strip

All these seven components have to undergo three different operations:PunchingBending Shearing

PS has following items in its WIP:

Item Code Description UOM WIP W/H12114205 574*422*.2 CAB BACK 100 KG 1034 PSI

12114234686*475*.2 GP PL BTM PIECE 100 KG 1403 PSI

121142501104*567.5*.2 GP PL SLIDE 100 KG 649 PSI

97715297 775.5*615.5*0.35 DOOR 100 KG 879 PSI

977168311530*479*.4 GPSP T/B STRIP 100 KG 221 PSI

97725916 777*615*.5 DOOR 100 M GOLD EAC 124 PSI

977299030.35*520.4*837 GPSP PANEL 100 KG 286 PSI

12114346 840*498*.3 CLIP ON 100 KG 362 PSIP7600387 150 READY SLIDE EAC 300 PSI

91

97726269 885*422*.25 CAB BACK 150 KG 240 PSI97726270 872*567*.35 GP PL SLIDE 150 KG 244 PSI

977298960.45*612.5*1120 GPSP DR 150 TD KG 446 PSI

97727227 1150*500*0.35 CLIP ON 150 KG 244 PSIP7600241 170/180 READY SLIDE EAC 875 PSI10116496 1003*572.4*.35 S PANEL 170 KG 1845 PSI

12114218730*528*.2 GP PL BTM PIECE 170 KG 1138 PSI

97709734942.5*665.5*.35 T DR 170 CHAMP KG 2021 PSI

97710435 740*474.7*.2 CAB BACK 170 KG 231 PSI

977168301530*531*.4 GPSP T/B STRIP 170 KG 1614 PSI

977196501298*730*.35 GP PL SLIDE 170 KG 815 PSI

97725675944*665.4*.5 TD 170 CHAMP SS EAC 280 PSI

97727055 975*665*.35 T DOOR 170 NO.1 KG 2829 PSI

977298970.45*665*942 GPSP DR 170 CHAMP TD KG 653 PSI

977298980.45*665*975 GPSP DR 170 NO.1 TD KG 2806 PSI

Data of WIP in PS:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07PS 1855932 2579429 2497528 2408850 3165951 2349563Production In units

35691 25403 24728 45450 47253 54641

92

Comments by supervisor:

1. Run cut is a big problem which increases WIP. It happens due to many reasons like breakdown and mainly form shortage of material.

2. Material of obsolete model kept lying in their warehouse.

3. Sometimes some material is rejected but the supplier takes it back only on 8th and 25th of the month. So till date that rejected material is counted in their WIP.

4. For few models and for service requirements small runs are made which need material in small quantity but stores issue material in bulk only. So rest of the bundle keep lying till the next run comes.

5. Sometimes there is material shortage and they have have to work wither other size of material instead of the required one. So unnecessary WIP is generated.

8.Quality:

Quality departmetn is the customer side of production function of unit. It is what checks acceptance and standards meeting capability of refrigerator. it is what makes Godrej The GODREJ. Quality department has its role a few times in the total process but its main function is at the end when the frige gets completed and is ready to be sold. There are many types of test performed on each and every model of the fridge.

93

QTY has following items in its WIP:Item Code Description UOM WIP W/H97711559 LOKRING 4NST37 EAC 25558 QTY97711560 LOKRING 6N EAC 40165 QTY97711561 LOKPREP ML 39800 QTY97711562 LOKRING 4NST33 EAC 83580 QTY97716423 LOKRING 7N EAC 25145 QTY97715989 LOKCAP 6.35 EAC 25660 QTY

Data of WIP in QTY:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07QTY 1463331 1652838 2324432 2136150 1417590 1070963Production In units

35691 25403 24728 45450 47253 54641

Comments by supervisor:

1. Their WIP consists of 5 type of Lock Rings which come from pune and it is very critical for quality test. The lead time os these itmes is 2 weeks so high inventory has to be maintained.

2. These quality test are not standard. For example sometimes double side lock ring is done insteas of single one. So due to unpredictability of the process high WIP is maitained.

94

9.Refrigerator Final Assembly:

RFA has following items in it WIP:

Item Code Description UOM WIP W/HRHW53173326 AL WASHER(BIG) FR EVPR EAC 4150 RFIRMS04007047 ALUMINIUM STICKER EAC 340 RFI

RPA97726847ANGLE BOARD 40*40*3 572mm 170L EAC 725 RFI

RPA97727508ANGLE BOARD 40*40*3 708mm 180L EAC 825 RFI

RPA97726849ANGLE BOARD EDGE PROTECTORS EAC 700 RFI

97714037APRON MOUNTING BRACKET-180L EAC 190 RFI

RBC97729715 BACK.2X474X904 215L C.RED EAC 657 RFI97719483 BOTTLE SHELF 180/215 EAC 502 RFI

RPA97728452BOTTOM CVR 562*687MAT/INF 3PLY EAC 500 RFI

RMS59420266BOTTOM HINGE CADMIUM PLATED EAC 103 RFI

RMS97728603 BROWN SEALANT TAPE 1 INCH EAC 12 RFIRMS97713959 BULB BRACKET COMMON EAC 865 RFIRMS97713314 BULB COVER COMMON EAC 910 RFI

97721460BULB HOLDER 16X0.2 TINNED WIRE EAC 780 RFI

RMS97725539CARE BOOKLET DC MODELS-COMMON EAC 306 RFI

97713320 CAUTION STICKER EAC 720 RFI

RCT97729067CHILLER TRAY ASSLY MAT GPPS LC EAC 83 RFI

RMS97726368 CHILLER TRAY FLAP PP+TPT EAC 97 RFIRMS97728574 CLIP FR LG COMP BASE PLATE EAC 581 RFI

RMS97727775COMP BASE PLATE 170 LG COMP EAC 190 RFI

RMS59426198CONDENSOR MNTG BKT ZN PLATED EAC 4670 RFI

4025483 COPPER CUT PIECE 5" EAC 640 RFIRVT97726881 CRISPER TRAY PP MATRIX LC EAC 306 RFIRMS40652597 DRAIN SEALING 40*25mm EAC 200 RFI

97707892DRAIN TUBE 660mm 150/215/300L EAC 329 RFI

95

RDR97725870DRIER WITH BRAZED COPPER TUBE EAC 772 RFI

RMS97710288 E-12 LAMPS EAC 780 RFI

97722233EVAP FRAME LG WHITE 200L LC EAC 190 RFI

RCS45330753 FLUX POWDER FR BRAZING KG 1 RFI

40067665FOAM FOR SUCTION LINE WHITE EAC 1530 RFI

97729822 FOAM STICKER 480*10*10 EAC 1000 RFIRMS97726646 FOOT BOTTOM PART EAC 1224 RFIRMS97730500 FOOT TOP PART WITH LUGS EAC 496 RFI

RMS97726645FOOT TOP PART WITHOUT LUGS EAC 245 RFI

RFD97729068FREEZER DR ASSLY 215 HIPS LC EAC 97 RFI

97720284G.P. PLATE FOR BTM PIECE (50*80) EAC 745 RFI

RMS97713637 GROMMET FOR APRON EAC 2150 RFI

97721281HANDLE BOTTOM SILVER COATED EAC 669 RFI

RMS97729143HANDLE TOP CANDY RED MATRIX EAC 393 RFI

RMS97728205 ICE TRAY COMMON EAC 103 RFIRHW97703876 KEY MAT/INF EAC 425 RFIRFN97703795 LIGHT SWITCH JERRY EAC 560 RFI

97709391LINER DECO STRIP 436mm 180/215 EAC 506 RFI

RMS97728561 LINER SHELF G TYPE MAT/INF EAC 506 RFI

RMS97728153LOCK BRACKET TALL DOOR MAT/INF EAC 970 RFI

RHW49002636 M6X20 HEX BOLT EAC 8100 RFI97726311 M6X20 HEX SLOTTED BOLT EAC 1400 RFI

49600177M6X20 RD HD SLOT SCREW-HANDLE EAC 4150 RFI

97713450M6X42 SS BOLT 304QLTY CONE PT EAC 2000 RFI

97727231 MASKING TAPE 0.5 INCH ROL 242 RFIRHW45008434 MASKING TAPE 1 INCH EAC 25 RFI

97714641MCC READY CONDENSOR 200L LC EAC 320 RFI

97702891NO.10X13 COMB.SELF TAP SCREW THS 2.5 RFI

97721225 NO.6X19 SELF TAP EAC 2500 RFI

96

SCREW+WASHER RDM04022677 NYLON DOOR STOPPER (NDS) EAC 1300 RFI97721231 PU LOGO MATRIX EAC 520 RFI44134673 PUTTY FALGUN-786 KG 15 RFI

RMS65568723REAR SUPPORT FOR EVAP 170/215 EAC 1070 RFI

45324705SILVER BRAZING ROD 5%AG 6 % KG 25.55 RFI

Data of WIP in RFA:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07RFA 3462027 5969234 3783384 4317750 4630794 2786691Production In units

35691 25403 24728 45450 47253 54641

Comments by supervisor:

1. Short supply of any material causes high WIP in the department because if one item is not supplied then goods are not completed and other materila keep lying on the floor.

2. One problem increases WIP is bulk issue. Even if we need small quantity of materail we have to take material in bulk. Whatever material is left in that bulk it is kept till next run of same model and same color comes. So for those many days WIP gets blocked.

97

3. One more cause of WIP is breakdowns. If there is a breakdown then whatever is there on the line is stopped and it is not finished so it is counted in our WIP.

10.Vacuum Foaming:

This is the department where the fridge gets its internal structure. High impact polystirene sheets are first heated at two stations at around 400-500 C. sheet is then moved over a desired shpae and vacuum pressure is applied. Due to vacuum created below the sheet, the sheet is sucked inside and gets the shape of the die. Thus thy make two shapes one is called Liner and is sent to CF and othe is Plastic Door Panel which they send to DF.

VF has following itmes in its WIP:

Item Code Description UOM WIP W/H

97727763HIPS PLTZ LINER 1180*540*3 150 EAC 60 VFI

97726448HIP PLTZ PDP 990*590*1.4 170 L EAC 1120 VFI

97726591HIP PLTZ LINR 1025*580*3.4 170 EAC 1132 VFI

97727754HIPS PLTZ PDP 990*590*1.7 180L EAC 118 VFI

97727755HIPS PLTZ PDP 1155*590*1.7 200 EAC 600 VFI

97727756HIPS PLTZ LINR 1127*519*4 200L EAC 575 VFI

97727759HIPS PLTZ PDP 1320*590*1.7 250 EAC 45 VFI

97713106 NUT PLATE - 300 CGDLX EAC 1355 VFI

97704560ROUND BUSH FOR NO.6 SCR-GREEN EAC 7950 VFI

RMS97703856ROUND BUSH FOR NO.8 SCR-WHITE EAC 12650 VFI

RMS97704561ROUND BUSH FOR M6 BOLT-BLUE EAC 8450 VFI

RMS65568723 REAR SUPPORT FOR EVAP. EAC 217 VFI97722499 WHITE TAPE. EAC 51.5 VFI

98

Data of WIP in VF:Particulars 0ct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07VF 209149 362121 519288 1071711 912455 704868Production In units

35691 25403 24728 45450 47253 54641

Comments by supervisor:

1. Change of run is one

reason of increase of WIP. In any going run suddenly order comes to stop that and start new run so whatever material produced, unproduced or half produced is there is kept untill next run comes, till then its ther WIP.

2. The changeover of rotary is a long process so for that time we need to keep some material ready so that every time the next department is not affected due to changeover.

3. This department runs only in one shift and feeds both shifts. So at the end of first shift WIP is very high so if u calculate after that shift then WIP crosses all limits.

4. Normally machine does not breakdown but if it goes then it takes 2 days to repair. So they need extra safety stock.

RECOMMENDATIONS

1. Right Accountability- Maintenance department has 4 items as per WIP sheet available through software BAAN but supervisor claims none of them. In every department accountability should be clearly defined and communicated.

99

2. Change of Run- Short run is a most frequently given reason for the increasing 1WIP. To avoid this situation, production planning process must be reviewed. Any change of run must be communicated in advance and any sudden change of run must be avoided.

3. Parallel supply- One reason of increasing WIP is default on part of suppliers. Delay in delivery must be avoided and frequently defaulting suppliers must be looked into.

4. Small Quantity- Stores should issue material in smaller lots so that no excess inventory is lying at any production level. Standardisation of packaging of material can also be implemented.

5. Right Quantity- It has been observed that sometimes stores issue material to the departments, which is more than the requisition. This practice should be stopped as the excess material is of no use till the next run and increases WIP in the long run.

6. Purchase Process- The purchase process must be looked into from time to time in order to avoid delays.

7. Change of Attitude- Last but not the least, change in attitude of the department supervisors is required. The need to control and reduce WIP must be communicated to them and its implementation must be ensured.

100

COST REDUCTION AND CONTROLIN

HUMAN RESOURCE

INTRODUCTION

Labour costs constitute a significant portion of the total cost of a product. It includes the monetary as well as the fringe benefits provided to employees. The total of these benefits given to the workers should be sufficient enough to attract and retain the labour force. The will to work among workers should be created with the consequent increase in efficiency.

101

Under the present political conditions with a restive labour in organised industry, it is very difficult to reduce labour cost. Therefore, proper control and accounting for labour cost is one of the most important problems of a business enterprise. But control of labour cost presents certain practical difficulties due to the human element involved. Labour is the most perishable commodity and as such should be effectively utilised immediately. Labour, once lost, cannot be recouped and is bound to increase th cost of production. Therefore, economic utilisation of labour is a need of the hour to reduce the cost of production.

Labour cost control is an important objective of management and the realisation of this objective depends upon the cooperation of every member of the supervisory force from the top executive to foreman.

From functional point of view, control of labour costs is affected in large industrial concerns by the coordinated efforts of the following departments:-

Personnel department Engineering department Time and motion study department Time keeping department Pay-roll department Cost Accounting department

Current Cost Control Methods at Godrej:-

1. Training and development-The skilled and unskilled labour is provided on the job training.This is done in order to improve efficiency of labour and also to decrease defects during production.

2. Proper Labour Cost Reporting-

102

Daily productivity and manpower reports are maintained separately by all production departments. This helps management in controlling labour cost and improving efficiency.

3. Time Study- Proper time required to do complete each job is being determined through Time Study. This involves the following-

Analysis of work Standardisation of methods Time study of standard methods.

This forms the basis of payment and calculating the premium or bonus payable. It facilitates budgeting and helps improve efficiency. It also helps to control costs through proper production control.

4. Time Keeping-Proper time recording is carried out for the workers, making distinction between normal time, overtime, late attendance and early leaving. This is done through time cards.

5. Job evaluation-Proper job evaluation is being done to understand the duties and responsibilities and hence determine whether skilled or unskilled labour is required for the job and also specify skill set required for proper performance of the job. This reduces defectives and improves efficiency.

6. Specialisation-Specialisation is encouraged through repetitive performance of tasks. This improves quiality of work, reduces defectives and also improves performance.

LABOUR COST ANALYSIS:-

Number of labour employed per day per shift- Permanent- 150 Casual- 250 TOTAL 400

Number of hours per shift per day-

103

Normal- 8 hours Overtime- 2 hours

Extra labour employed to hedge for absenteeism, etc- 30 (out of casual labour)

WAGES- Wages to contractual labour- Rs. 2470/ month

(under min. wage act) Overtime Rate- Rs. 23.75 per hour. Wages to permanent labour-

ANNUAL LABOUR COST (2006-07)

DescriptionActual Total

(Lakhs)STIPEND TO WORKMEN 1.19WORKMEN'S WAGES-BASIC 95.05MISCELLANEOUS WAGES TO WORKMEN 66.60OVERTIME WAGES TO WORKMEN-BASIC 23.24ESIC CO'S CONTRIBUTION-WORKMEN 8.24PROV FUND CO'S CONTR-WORKMEN 11.06HOUSE RENT ALLOWANCE TO WORKMEN 46.36ANNUAL STATUTORY BONUS TO WORKMEN 19.49LEAVE TRAVEL ASSIS. TO WORKMEN 0.22Conv Exp. Workmen 12.50Canteen Expenses 12.49 TOTAL 296.44Refrigerators Production (Nos) 451976COST/REF Actual

Rs.65.58

Cost/ REF Budgeted Rs.76.85

Analysis of Total Wage Cost:-

104

WAGE COST PER REFRIGERATOR (2006-07)

0

20

40

60

80

100

120

140

Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07

CO

ST

(R

up

ees)

Series1

OBSERVATIONS- Total wage cost per refrigerator is much lower than the budgeted wage

cost. Per refrigerator total wage cost fluctuates over the months. The variance in months of July and October 2006 is very high.

105

Basic Wages and Overtime Analysis.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1 2 3 4 5 6 7 8 9 10 11 12

0

10000

20000

30000

40000

50000

60000

overtime

wages

production

OBSERVATION:-

Basic wages moves in same direction as production in most of the months.

In month of June, Production had decreased but basic wages have increased even further.

In month of March, production has risen but basic wages have fallen down.

Overtime exists in every month. Production and overtime are moving in the opposite directions in certain

months-- Production decreasing- overtime increasing- July, December.- Production increasing- overtime decreasing- September, October, January.

106

The increase in overtime is widely disproportionate to increase in production.

REASONS-

Daily production Variation leading to underutilisation of labour. Occasional breakdown adding to abnormal idle time. Variation in speed of line by the production department which again

reduces utilisation of labour. Excess labour employed for safety against absenteeism, etc. Underperformance of labour. Lack of proper training especially for unskilled labour.

Overtime- Execution of rush orders Breakdown of machinery or failure of power during normal hours. Lack of proper manpower planning and control as overtime is a regular

feature and is also sometimes highly disproportionate to the production.

Recommendations-

1. Proper daily production planning to reduce excess labour employed.2. Reducing absenteeism and turnover and hence also the excess labour

employed.3. Proper on the job and off the job training to skilled as well as unskilled

labour to improve productivity.4. Reduce the events of breakdowns and shortage of raw material in order to

avoid abnormal idle time.5. There is a need to look into the labour employed and the labour utilisation

at various levels of production separately for all production departments and reassess the requirement.

6. OVERTIME- Proper planning and control of manpower. Discourage production target of normal time to be carried on to

overtime hours. Reduce breakdowns and shortage of material. Evaluate need of overtime and fully utilise the labour during normal

hours.

Training and Development

107

Training and development is an essential aspect of labour cost control in order to improve efficiency and productivity. It also helps ensure lesser defects during production which add to the production cost.

It has been observed that the cost of defects due to manpower mishandling is high. This cost is controllable trough proper training.

On the job as well as off the job training must be provided to permanent as well as contracted labour.

Job rotation would also help in improvement and efficiency.

Removing non value adding activities

Certain non value adding activities should be avoided such as in case of providing material on line, the packaging must contain standardised quantity of material for all items which would save time of segmenting the material.

Avoidable rework must be reduced-In case of powder coating department, wherein the entire process of powder coating has to be repeated as there is a slight fault in the red coloured paint which leads to uneven coating. This consumes a lot of manpower and time and hence increases labour cost as well.

Policies for Managerial Staff

108

QUESTIONNAIRE:-Do you have any employee handbook? Yes                 What are the Choice/salary pay components?        HRA Rank wise,Sr. Exe-Rs.14000p.m.  LTA Rank wise,Sr. Exe-Rs.12000p.a.  Office wear allowance No  Conveyance allowance Mementos. Exe-Rs.1400p.m.

 Fuel & maintenance reimbursements Yes,Sr. Exe-Rs.1800p.m.

 Child education & hostel allowance Yes,Rs.2400p.a (2 children)

  Medical reimbursements Yes,Sr. Exe-Rs.2000p.m.  Food & Gift voucher No

 Group personal accident insurance Yes,to Sales people

  Mediclaim insuranceYes,PHM with paramedical health

insurance  Investments Yes, limit upto tax slabs  Special personal allowance Rs.1200p.m.

  Any otherBasic+performance pay/sale

incentive+EVA+DVA                 Are there any Retiral policies of the company? Yes  Gratuity Yes  Provident fund Yes  Superannuation Yes,Higher band-Sr mgr & above                 Do you provide any Shifting/relocation & transfer benefits to employees & the conditions for the same

Yes,as per the job requirements & the whole amount is reimbursed

                 Domestic travel policy being given to the employees Yes  Mode of travel Grade wise,by train/air  Type of hotel accomodation Grade wise

 Facilities for boarding & Daily allowance Grade wise

  Out of pocket allowances Grade wise  Local conveyance entitlement Grade wise

 Is there any Grade wise classification for employees? Yes

109

                 What are the policies related to Deputation & Is there any allowance for the same?

     Yes, Rs.25000p.m.

                 Overseas/International travel opportunities for the employees

Yes

  Class of travel Economy & Executive  Classification of countries Yes  Daily allowance Nil  Foreign exchange entitlements Nil  Local conveyance & other

expensesNil

  Any other Nil  Is there any Grade wise

classification for employees?Yes

                 Does your company has policy for giving mobiles to employees within a particular Grade/Level? If Yes, Yes  Cost of handset Not provided  Reimbursement of monthly usage Rs.750 p.m.  Formalities on separation On pro-rata basis                 Does your company provide any Insurance security? Yes  Hospitalisation policy PHM, Cashless

 Group personal accident insurance policy Yes

  Any other Nil                 Do you provide any loan like marriage,medical emergency, housing security deposit & car loan etc? If Yes, under what heads & how is it paid? No                 Do you have a redressal forum for grievances of the employees? Yes                 Is there any facility like Leave Encashment? How can it be availed?

P.L. for 4 days, rest can be encashed

                 How many Leaves are allowed in the 1st year of joining itself? 9 Days (C.L. + S.L.)                 

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How many Holidays are available under the following heads:        Company declared holidays 8 Days  Optional holidays No  Casual leave 9 Days (0-5yrs), 12 Days(5-10yrs),

18 Days (10 yrs & above)  Sick leave  Privilege leave 20/25/28 Days  Joining leave Nil  Transfer joinong leave 3 Days Scouting Trip + 6 Days  Maternity leave 84 Days  Miscarriage leave No  Compensatory off Yes, within a week  Unauthorised leave Nil  Any other Nil                 How do you deal with employees coming late & going early?

If 24 times a yr, no increment/probation extended

                 What is the separation procedure followed by the company?

30 Days notice/salary settlements

                 What are the basis of termination of employment?

Enquiry+ Resignation/Termination

                 Do you have exit interviews? Yes                 How much time you take to settle an employees full & final account?

15 Days-salary+leaves, 60 Days-P.F+Gratuity

                 Any other policy not mentioned above

Recruitment +Performance appraisal           

LIMITATION- The policies for managerial staff, salary, benefits etc. are all decided by

the head office hence no related data was available. Certain aspects under this cost component could not be analysed and

recommendations could not be quantified due to unavailability of daya and also due to shortage of time.

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COST REDUCTION AND CONTROLIN

OVERHEADS

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Cost pertaining to a cost centre can be divided into two portions- direct and indirect. The indirect portion of total cost constitutes the overhead costs.These days we hear that the overhead costs are increasing in every organisation. Overhead costs do not indicate inefficiency if accompanied by-

Large scale production Increase in efficiency and productivity of labour Less human efforts will be required because of automated machines but

more machine expenses will have to be incurred More depreciation, maintenance expenditure and similar other items

because of more use of machinery Improved methods of managerial control may reduce the direct costs but

will increase the overhead costs.

Overheads can be classified as-1. Works overheads2. Administrative overheads3. Selling and distribution overheads4. Research and development overheads

The project mainly deals with the works and administrative overheads

Analysis:

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S.No  Final Mar Mar. Budget

Variance till Mar

1.Car Expenses

166,109.00 250,000.00

83,891.00

2.Communication

1,053,611.00 900,000.00

(153,611.00)

3GIL

573,026.00 230,000.00

(343,026.00)

4General Expenses

372,458.00 400,000.00

27,542.00

5Legal & Proffesional

1,950,111.00 1,800,000.00

(150,111.00)

6Lunch & Conveyance

341,906.00 300,000.00

(41,906.00)

7Employee Health & Safety

597,365.00 775,000.00

177,635.00

8Printing & Stationery

759,585.00 800,000.00

40,415.00

9Security

3,047,298.00 3,000,000.00

(47,298.00)

10House Keeping

6,550,771.00 5,684,000.00

(866,771.00)

11Subs & Training

842,282.00 2,036,000.00

1,193,718.00

12.Tour Expenses

2,665,789.00 1,800,000.00

(865,789.00)

13Entertainment

150,826.00 200,000.00

49,174.00

14 Repairs & Maintanance (Buildings)

3,249,160.00 8,500,000.00

5,250,840.00

15Rates & Taxes - 200,000.00

200,000.00

16 Rent - 400,000.00

400,000.00

Total 22,320,297.00 27,275,000.00

4,954,703.00

     

Production:   778,745.00 451,976.00

Per Unit Base cost   12.21 28.29

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COMPARISON

(2,000,000.00)

-

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

OVERHEADS

AM

OU

NT VARIANCE

BUDGETED

ACTUAL

After analyzing the records of the overheads of previous financial year we came to the following analysis:

1. Overall cost of overheads during the previous year was less as compared to the budgeted, but in certain heads we have seen variances.

2. Overhead Cost has not been allocated separately to each department, but has been taken as the cost of Godrej as a whole.

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Problem Identification:

1. Communication- Not proper negotiations with different telecom service and security providers were there.

2. House Keeping- Excess house keeping staff because the extra labour which were in plant also used for house keeping.

3. Tour Expenses- There is no individual limit set for the tour expenses, of departments. Number of people eligible for such purposes has not been determined.

3. There is no limit to the department wise overhead costs. This leads to lack of cost control as well as lack of accountability for excess costs. Recommendations:

1. Communication-

The communication expenses have exceeded the budgeted expenditure by Rs. 153611. This has a scope of cost reduction through negotiations with the telecom service providers.

Current telecom service provider- HFCL Terms of usage-

Min. commitment pre month: Rs. 200/month/connection Call Rate to Mobile: Rs.1.20/ min Call Rate to Landline- Rs.0.40/min

With the involvement of Utility managers, negotiations were done with different telecom service providers so that the company can reduce their cost on communications.

1. Negotiations with HFCL- Min monthly commitment- Nil Call Rate to Mobile- Rs.1.20/ 3 minThis shall lead to an annual saving of 20% in communication expenditure amounting to Rs 210722

2. Installation of Tata Indicom in specific departments. Head Office at Mumbai uses Tata Indicom phones. The call rate of Tata to Tata phones is NIL Therefore, Tata Indicom phones are being installed in specific

departments for communicating with the Head Office.

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This had led to a cost saving of 75- 80% of communication expenditure on STD calls amounting to Rs.172800

3. Further negotiations are being conducted with Tata Indicom for providing us lower rates as compared to those being charged by HFCL.

TOTAL COST REDUCTION - Rs.383522 2. House Keeping-

Godrej maintains an excess of contractual labour of on average 30 persons per shift, with two shifts per day.

This excess is maintained to overcome any shortage of labour in case of absenteeism.

Otherwise this excess labour is put to house keeping work. This excess labour generally remains underutilised. Hence, there is scope of cost reduction through reduction through

proper analysis of excess labour requirement and reducing the number employed..

3. Tour Expenses-

The limit on expenditure on tours must be set department wise. The number of people eligible for such purposes must be

determined, within the department.

4.Security- It is recommended to negotiate with other security providers.

5. It is also recommended to break all the overheads department- wise so that the company can know about the exact position of the overheads w.r.t to each department and improve accountability.

LIMITATIONS

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1. The analysis has been done on the basis of data for the year 2006-07 only.

2. Direct purchases and Managerial staff incentive could not be touched upon as these are decisions taken at the head office and data was not available.

3. Selling and distribution expenses and finished goods are beyond scope of the project as these do not form a part of the plant’s activities and hence data was not available as well.

4. For work in progress analysis inferences have been based on data available only for 6 months.

5. The time available for the project was only 2 months which were not enough to cover each and every aspect of costs, hence leaving scope and possibilities of further cost reduction and control as well.

CONCLUSION

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Cost Reduction and Control is a valued objective of the company in order to build upon its competitive advantage. Many cost control measures such ABC and FSN control, Kaizen etc are being implemented. The cost including material cost, human resource cost and overhead costs are within the budgeted limits.

For Godrej and Boyce Mfg. Co. Ltd., cutting costs is not only a management priority when business conditions are weak, only to be forgotten when economic growth resumes. But rather is aimed at for continually increasing operating efficiency, fundamental to success in both good times and bad.

The project “Cost Reduction and Control” provides an insight into the efficiency of various deparments at Godrej, highlighting areas with need for cost control and also those having scope for cost reduction. An analysis of various cost components suggest that the overall cost control mechanism of Godrej is very efficient. The costs and expenditures are planned, managed and controlled well within the budgeted limits.

PRODUCTION PROCESS:-The production process is highly efficient and there is a lot of stress on quality improvement, also keeping a check on costs.There is scope of cost reduction of Rs.17379264 through control of rejections, foam density control and use of alternative method of leak control i.e. replacing lock rings with brazing.

INVENTORY:-Constant efforts have been made in order to control costs of inventory through employing ABC analysis, FSN analysis, use of Third Party Logistics and Local Milk Run etc. but there is a need to fully utilise the resources as well as reducing blocked working capital, carrying costs etc.There is scope of cost reduction of Rs.43,98,415 through application of Just In Time inventory control, Disposal of Obsolete stock, etc.

HUMAN RESOURCE:-The labour costs, though well controlled can be reduced through a constant check on the overtime employed, proper utilisation of labour, reducing excess labour and keeping a check on absenteeim.

OVERHEADS:-There has been a continuous decline in the overhead costs over few years still there is scope of reducing Rs.383522 in expenditure on communication. Proper limits must be put on expenses of each department. Housekeeping expenses can be controlled through reducing excess labour employed.

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Hence with the application of given recommendations the cost to the company can be reduced by Rs.2, 21, 61, 20.

REFERENCES

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BOOKS:-

Cost Accounting by Charles T. Horngren, Srikant M. Datar, George Foster

Financial Management by I.M. Pandey

Operations Research by K.K Chawla, Vijay Gupta, Bhushan K. Sharma

WEBSITES:-

www.bnet.comwww.google.com

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