A STUDY ON INVENTORY MANAGEMENT

IN

MAHINDRA AND MAHINDRA LIMITEDAUTOMOTIVE SECTOR – ZAHEERABAD, MEDAK (DIST).

Project Report Submitted to Dept of M.B.A. Osmania University, Hyderabad, A.P. In partial fulfillment of the requirements for the award of

MASTER IN BUSINESS ADMINISTRATION2010 – 2011

ByShailesh kumar singh(H.T. No: 1245-10-672-057)

Vivekananda school of PG studies

(Affiliated to Osmania University, Hyderabad.)2010 - 2011.

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M&M: Z: HR-33:2009Date : May 17, 2011

To whom so ever it may concern

This is to certify that Mrs. Shailesh kumar singhbonafied student of Vivekananda school PG studies, Hyderabad, A.P. has undergone

a project work on “Inventory Management” in partial fulfillment of his MASTER’S

DEGREE in Business Administration 2010-2011. During the above period he was

sincere, punctual and hard working. His character and conduct was found to be good.

The Preliminary Report submitted by him is found relevant.

We wish him all success in his future endeavours.

For MAHINDRA & MAHINDRA LIMITED

MANAGER – HR

Regd. Office: Gateway Building, Apollo Bunder, Mumbai-400 001. Tel. (022) 2021031 / 287 3388 : Fax (022) 202 8708 / 8990.

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Mahindra & Mahindra Ltd.,

DECLARATION

I here by declare that the analysis and interpretation of the data and true

and firm to the best of my knowledge.

The project report entitled “INVENTORY MANAGEMENT IN MAHINDRA

& MAHINDRA” is a study report has been submitted towards the partial

fulfillment of the requirement for the award of MASTER OF COMMERCE

from Osmania University.

Any details pertained of study or the details of this project are not to be

used may other from or not to the submitted any institution except to the M

& M Ltd., The organization where I did the project and to the college from I

am pursing the cource.

By

Shailesh kumar singh (H.T. No: 1245-10-672-057)

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ACKNOWLEDGEMENT

I wish to express my appreciation to the various persons that have directly or indirectly helped me in completing my project.

I am very much thankful to Mr. P.V.RAO, Vivekananda school of PG studies. College, Osmania University, Hyderabad for permitting me to pursue my project in M & M Ltd.,

I am grateful to Mrs. T.V.S.K. PRASAD – Faculty Finance, for providing her valuable inputs and sharing with the students her vast and practical experiences the field of finance. We are indeed lucky to have such as experienced and healthful person as over faculty.

I am grateful to faculty members for their valuable guidance.

I wish to express my sincere thanks to Mr. K.P.N. RAO, D.G.M. – HR & IR M & M Ltd., kondapur. For giving me a good opportunity for doing project in their organization.

I am also thankful to Mr. A. KAMESHWAR RAO, D.G.M. Accounts for his valuable guidance.

I extended my sincere thanks to Mr. PATTHABHI RAMA CHARYULU, (Accounts) Mr. SUNIL CHAND, (Supply Module) Mr. SAI PRASAD, (R & D) and Mr. B. SRIKANTH, (HR) for their kind co-operation.

I thank all other members of the organization for having given me for their timely support and helped me to successfully complete of my project report.

Shailesh kumar singh.

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CONTENTS

Page. No

CHAPTER –1 : INTRODUCTION 1-4

CHAPTER – 2 : COMPANY PROFILE 5-19

CHAPTER – 3 : THEORATICAL PERSPECTIVE 20-30

CHAPTER – 4 : STORES DEPARTMENT 31-32

CHAPTER – 5 : TOOLS AND TECHNIQIUES OF 33-48INVENTORY MANAGEMENT

CHAPTER – 6 : CONCLUSION AND RECOMMENDATIONS 49-50

CHAPTER – 7 : BIBILIOGRAPHY 51-52

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CHAPTER –1

INTRODUCTION

MEANING AND NATURE OF INVENTORY

INVENTORY CONTROL

OBJECTIVES OF INVENTORY

CONTROL

NEED FOR INVENTORY MANAGEMENT

OBJECTIVE OF THE STUDY

METHODOLOGY

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MEANING AND NATURE OF INVENTORY

Inventory can be referred to as sum of the value of raw materials fuels and lubricants, spare parts, maintenance consumables, semi processed materials and finished goods, stock at any given point of time.

In large companies inventory place a most significant part of the current assets. The business has about 15 to 30% of inventories in total assets.

Inventory is composed of assets that will be sold in feature in the normal course of business operations. The assets which firms stores as inventory is anticipation of need are raw materials, work in progress and finished goods.

MEANING OF INVENTORY MANAGEMENT

Inventory management consists of maintaining for a given financial investment an adequate of something in order to meet and accepted pattern of demand. Inventory considers control over costs of inventory on one hand an handle the size of inventory on other hand.

Controlling investments in inventories constitute crucial part in current assets.

An efficient inventory controlling system will decide,

What to purchaseWhen to purchaseHow to purchaseSize of purchase

And from where to purchase (Suppliers)

The main purpose of inventory management is to ensure

1. Required quantity of availability of raw materials 2. Minimize the investments in inventories 3. Maintain reasonable stock levels not excess or not under stocks.

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INVENTORY CONTORL

Inventory control is the system devised an adopted for controlling investments in inventory. It involves inventory planning and decision making with regard to the quantity and time of purchase, fixation of stock levels, maintenance of stock records and continuous stock – taking.

OBJECTIVES OF INVENTORY CONTROL

Inventory control includes not only of the physical stocks but also of the funds invested on it.

That twin objectives of inventory control are,

1. To maintain a balanced inventory.2. To keep the amount invested in inventory as low as possible without

hampering either flow of the production or deliveries of finished goods.

To avoid both under stocking and over stocking of inventory. To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralized purchasing. To ensure continues supply of materials, spares and finished goods

so that production should not suffer and any time and customers demand should also be met.

To design proper structure for inventory management. A clear cut accountability should be fixed at various levels of the organizations.

To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price analysis, the cost analysis will ensure paying of proper prices.

To facilitate furnishing of data for short term and long term planning and control of inventory.

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NEED FOR INVENTORY MANAGEMENT

In this competitive business world each and every business organization need inventory management system for determining what to order, when to order, where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. Thus, inventory management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost.

The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap, simplification, standardization and codification of inventories, determining the size of inventory holdings, maintaining record points and safety stocks, economic order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.

OBJECTIVE OF THE STUDY

The main objective of the project work is to study and analyze and preparation of INVENTORY MANAGEMENT in M & M Ltd.,

The objectives are :

1. To know about the Purchasing procedure of the inventories.

2. To study about classification and codification of inventories.

3. To analyze the records of stock levels.

4. To analyze about JIT and Two bin system of M&M Ltd.

5. To know about the profitability of M&M Ltd throw inventory management.

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METHODOLOGY

To attain the objective of studying the inventory of M & M Ltd. The information has been collected in two ways:

1. Primary data2. Secondary data

Primary Data :

In Primary data the analysis of purchasing procedure, inventory data, inventory turn over ratio, stock levels, ABC analysis, Twobin system, JIT has made possible by the discussions with various administrative executives and other concerned people of M & M Ltd.

Secondary Data :

The Secondary data has been collected from annual reports of organization, internet (www.mahindraworld.com) and books.

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SCOPE OF THE STUDY:

The topic titled “A STUDY ON INVENTORY MANAGEMENT is conducted

in Mahindra&Mahindra Ltd. The scope of the study is limited to inventory management

and period is limited to five financial years of the company. The analysis was

conducted from 2004-2005 to 2008-2009.The tools used for are ratio analysis. The

trend analysis is for sales and inventory is conducted. The study is based on the

inventory data available from financial statements and internal records of the company

and primary data collected through informal interview with the company officials.

LIMITATIONS:

Since the study is based on the inventory management i.e. obtained from the

company’s finance and production department, the limitations of the inventory

management shall be equally applicable.

The study is conducted within short period thus it may not be as detailed & fully

fledged.

The study is conducted with the data available and analysis was made

according to it.

Lack of additional information’s from the company due to confidential matters.

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COMPANY PROFILE

UNIT SCENARIO:

The MAHINDARA & MAHINDRA COMPANY is located 110 Kilometer from the State capital of Hyderabad in AP at Zaheerabad it has an area of 350 hectors land including all facilities.

In July 1983 HYDERABAD ALLWYN LIMITED (HAL) A State Public Sector undertaking of A.P. Government entered in to a technical and financial assistance agreement with Nissan Motor Company (NMC) Limited of Japan for manufacturing of new generation of light commercial vehicles (LCVS) in India.

At the same time the state government was facing a several financial crisis and both the financial and industrial development corporation were facing massive cuts in government finding therefore in order to cover the closing down of units, the state government in difference to the State Industrial Policy decided to sell of Allwyn Nissan Ltd. (ANL) the capable of business houses, in this case preferably an established automobile company.

After that an intensive negotiation MAHINDRA & MAHINDRA LTD. The countries leading manufacturing of JEEPS & TRACTORS entered into a memorandum of understanding with H.A.L. on 10th June 1988 and agreed to acquire 26% of share capital in ANL and thereafter take control of the companies management with this transfer of share and management, the joint venture between H.A.L. and NISSAN motor company was terminated and a fresh joint venture agreement was entered into 7th November 1988 by M & M Ltd. With NMC.

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The name of the company was changed to MAHINDRA ALLWYN NISSAN LTD., , M & M Ltd. Finally took entire control of the operation of the plant on 1992.

HISTORY

Mr. J.C. MAHINDRA & Mr. K.C. MAHINDRA established the company in 1945 and named as (MAHINDRA MOHEMMED. LIMITED).

Mr. MOHEMMED. Name was included in the name of company as recognition of his enormous help for the establishment of the company.

The company renamed as MAHINDRA & MAHINDRA LTD., in 13th Jan 1948. upto Jan 1955 it was continued as private company which covered under the company act 1913. It has become Public Limited Company on 15 th Jan 1955 and shares were listed in BSE in 1956. It was initially formed to manufacture the utility vehicles to Indian people and it was initially assembling and importing “WILLY OVER LAND CORPORATION” the M & M Ltd. Has started manufacture of utility vehicles firstly the WILLS JEEP in 1954 and later in 1965 it has concentrated on manufacturing the light commercial vehicles by producing “Successors”.

In 1963 export of vehicles started and the company started to export the spare part to YOGOSLAVIA, export also made to Celyon Singapoor, Philippines and Indonesia.

In 1995 cab king DI 3150 were introduced and classic vehicles were launched in 1997 Voyager was launched at Zaheerabad Plant in 1998. Complete localization of Cab King model at Zaheerabad.

BOARD OF DIRECTORS

The company is managed by the vice-chairman and managing director and the three executive directors (One for executive directors up to 24th Jan ’05) of the company. The Board review and approves strategy and oversees the action result of management to ensure that the long term objectives of enhancing state holder value are met.

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The company presents the thirteen directors the vice chairman and managing director and the three executive directors and whole time directors the chairman who is a non-executive chairman and the vice-chairman and managing director through professional directors in their individual capacities, belong to the company’s promoter group. UTI has one nominee director as the board. The remaining eight non-executive directors (Including the nominee director) are independent directors and professionals with expertise and experience in general corporate management finance banking and other allied fields.

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Directors :Non Executive-

Mr. Keshub Mahindra (Chairman)

Mr. Deepak S Parekh

Mr. N.B. Godrej

Mr. M.M. Murugappa

Mr. V.K. Chanana (Nominee of UTI)

Mr. Narayana Vaghu

Mr. A.S. Ganguly

Mr. R.K. Kulkarni

Mr. Anupam Puri

Executives :

Mr. Anand G. Mahindra (Vice-Chairman & Managing Director)

Mr. Bharath Doshi (Executive Director)

Mr. Alan E Durante (Executive Director)

Mr. A.K. Nanda (Executive Director and Secretary)

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PRODUCT DETAILS

MAHINDRA & MAHINDRA has modern facility at Zaheerabad, near Hyderabad where some of its important products are :

1. Mahindra Cab King 576

2. Mahindra FJ 470 DS4 High Roof Mini Bus

3. Mahindra DI 3200

4. Mahindra FJ Mini Bus

5. Mahindra Tourister

6. Mahindra Cab King 576DI

7. Mahindra Champion

8. Mahindra Champion Alfa

9. Mahindra Champion DX

10. Mahindra Load King DI

11. Mahindra Load King Super

12. Mahidnra Martial 2000 Delux

13. Mahindra Martial DX Royal

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DEPARTMENT OF FINANCE

BAPI RAJUW-7

K.S.S. REDDYW-7

V.K. MOHANW-7

V.V.P. SARTHYW-7

V.V.S.N. RAOW-7

V.R. RAOW-7

G.GOPALW-6

J.S. MURTHYW-6

ASITW-6

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MR. A KAMESHWAR RAODGM ZAHEERABAD / A/C.

MR. N.R.R. SASTRIMANAGER

MR. PATTHABHI RAMA CHARYULUMANAGER – L7

MR. SAI GANESH IYERMANAGER – L(COSTING)

MR. AMOL DESHPANDE L7 (OP)

SMT. SITAMAHALAXMIL8 OPERATIONAL

MR. SURSH SINGEKARL 8 OPERATIONAL

K. NAGESHW-6

RAGHAVENDRAW-6

J.P. REDDYW-6

FUNCTIONAL PROFILE

The Mahindra & Mahindra Ltd., is headed by General Manager (Operations) who is

assisted by Deputy General Managers from product department, quality assurance,

finance department, PHRD Department, Supply Module Department, The General

Manager (Operations) is also assisted by Senior Managers from Service Department,

Administrative Department, Vehicle Engineering.

PLANT LAYOUT OF MAHINDRA AND MAHINDRA, ZAHEERABAD.

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STORES

ENGINE SHOP

FRAME SHOP

AXLE SHOP

BODY SHOP

VEHICLE ASSEMBLY SHOP

TRIM SHOP

PAINT SHOP

DEPARTMENTALISATION

In Mahindra & Mahindra Ltd., the departmentalization is divided into :

I. Direct Department.II. Indirect Department.

Director Department :

The department which directly involves in the production process comes under this category. The core departments are as follows :

Production Planning & Control Department. Vehicle Engineering Department (VED). Paint Shop.

Indirect Departments :

The departments which are not directly involves in the production process and gives

more assistance come under this category. The core departments are as follows :

Administrative Department.

Finance Department.

Personnel and HRD Department.

Service Center.

Material Control Department of ancillary development department.

Vehicle Engineering Department.

Industrial Engineering Department.

Maintenance Stores Department.

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Introduction

Material Control

1) Definition of Material Control2) Objectives of Material Control3) Deference between Materials Control and Inventory Control4) Material Purchasing and Purchasing Procedure.

INTRODUCTION

The Primary Objective of cost accounting is cost control. This is achieved by exercising effective control over element of cost of the three elements of costs, i.e., material cost, wage cost and expenses, direct material cost is the largest single item of expenditure and substantial proportion of the costs of an organization.

The term materials includes physical commodities used to make the final end – product. The raw materials and supplies are equivalent to cash and they make up and important part of cost of manufacturing in many cases.

MATERIAL CONTROL

Material Control refers to managerial functions which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital.

Material Control is effected by co-ordination and control activities related to

Related to Material Planning.

Related to Material Sourcing.

Related to Material Purchasing.

Related to Stores and Material Handling.

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Definition of Material Control

The Term Material Control means “The regulation of the function of an organization relating to the procurement, Storage and usage of materials in such a way as to maintain an even flow of production without excessive investment in material stock”

Material control involves the control of the three important functions. They are :

1. Procurement or Purchase Control

2. Storage or Stock or Inventory Control and

3. Issue or Usage or Consumption Control.

OBJECTIVES OF MATERIAL CONTROL :

The Twin Objectives of Material Control :

a. Avoidance of production delay by maintaining an even flow of production.

b. Preventing excessive investment in material stock.

Other than these two objectives the other objectives are as follows :

1. To effect purchases of materials of the right quantity consistent with the standards prescribed in respect of the finished products.

2. To make available assured supply of materials so as to keep the cycle of production going without any interruption.

3. To Procure materials on the most favorable terms with a due to effect maximum economy in the cost of buying.

4. To ensure effective utilization of materials.

5. To prevent over stocking of materials and consequent locking – up of working capital.

6. To prevent losses during up of storage of materials.

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Deference between Materials Control and Inventory Control

The terms materials and inventory are used interchangeably, but they are not identical. The latter is a wider term covers items like sundry supplies, maintenance stores, tools, jigs and other components, work – in – progress and finished goods. The term material control and inventory control are not interchangeable. Material control refers to managerial function which are directed to ensure that required quantity and quality of material is provided at the proper time with the minimum amount of capital.

Material control is wider term than inventory control, besides inventory control material control includes control of production and planning, purchase procedure, control of transportation and usage control etc., where as inventory control referred to as some of the value of raw materials and fuels and lubricants, spare parts, maintenance consumables, semi-processed materials and finished goods stock at any given point of time.

ACTIVITY RELATED TO MATERIAL PLANNING

Identification of Materials

Quantity and Quality of Materials

Classification and Codification of Materials

Every Enterprise needs inventory for smooth working activities. Inventory serves as a link between production and distribution process of any organization. Generally a time lag between the recognition of a need and its fulfillment. The greater the time lag the higher the requirement for inventory. The fluctuations in demand and supply of goods also necessitate the need for inventory.

In large companies inventory plays a most significant part of the current assets. The average business has about 15-30% of total inventories in total assets. The main purposes of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.

A systemized inventory management will determine

a. What to purchase

b. When to purchase

c. How to purchase

d. Size of purchase and

e. From where to purchase (Vendors)

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MATERIAL PURCHASING AND PURCHASING PROCEDURE

Purchase of material is one of the important function of material management. At times more than 50% of the total product cost is material.

Functions of Purchase Department

1. Deciding the items to be purchased based on demand.2. Selection of sources of supply.3. Collection the price information.4. Placing the ordered.5. Follow-up the ordered.6. Checking the invoices.7. Maintenance of purchase records.8. Maintenance of vendors relations.

PURCHASE PROCEDURE

Purchasing procedure start with the initiation of purchase requisitions and ends with the receipt of materials in the stores.

CENTERIZED PURCHASING

It is most important and relevant to large organizations operating deferent plants may or may not be located at different places. For a single place organization decentralization might be feasible on a very limited place. But where as M & M Ltd., is a multiple plants operating organization.

In Mahindra and Mahindra Centralized purchasing procedure is following to purchase of materials.

Centralized purchasing avoids duplications of efforts and working at cross purpose from one plant to another.

Centralized purchasing permits consolidation of order of materials commonly used for two or more plants. The ultimately results in greater buying power, favorable contracts and trade agreements.

Easier to maintain the quality of purchased parts / items through centralized testing and inspection. It is also possible to conduct testing and inspection facilities.

Centralized purchasing permits to avail facilities like quantity discounts and cash discounts thus its helps to reduce cost.

It is beneficial to vendor also in case the size of order constituted major proportion of his total production capacity.

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PURCHASING ACTIVITIES OF INVENTORY IN MAHINDRA & MAHINDRA LTD.,

SL.NO.

PROCESS SUB ACTIVITY

1. MATERIAL PROCUREMENT PROCESS

OrderingExecutionClosing – SAP

2. TRANSPORT BILL PASSING Bill EnteringBill Passing – SAP

3. VENDOR AIDED MATERIAL RECEIVED AND DISPATCHED

Material TransferDocument Entering – SAP

4. VENDOR AIDED RECONCILIATION PROCESS REJECTION

Reconciliation – SAPVendor Aid Material Transfer Debit

5. PRE-EN PROCESS Receiving DocumentSecurityMeetings and Closures

6. NON MOVING IDENTIFICATION AND DISPOSAL

Identification through Non moving EN finalized and disposal approve from finance and dispatch

7. STATIONARY PURCHASING Identifying quotation comparison information record and P.O.

8. MANAGEMENT INFORMATION SYSTEM

Information gather compilation schedule updation

9. LOGISTICS Material collection and dispatch

In M & M Ltd., the materials as purchased on monthly basis from the various vendors. Schedule made on monthly basis, for every month the suppliers list is prepared and purchase the require quantity of materials from the selected vendors.

In further purchasing procedure process, i.e., for next month material management department look after previous month performance of vendors the performance like, time of delivery, quantity discounts, term of payment, mode of delivery, quantity of materials and good will of the suppliers in the market.

On the basis of these factors vendors list is prepared

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VENDORS (OR) STORES SUPPLIERS OF M & M - ZHB (MARCH – 2006)

SL.NO.

NAME OF VENDOR PLACE

1. M.G. AUTOMATIVES PVT. LTD. ZAHEERABAD

2. MUNGI BROTHERS ZAHEERABAD

3. ALF ENGINEERING COMPANY ZAHEERABAD

4. TATA IRON AND STEEL COMPANY MUMBAI

5. SURENDERA FORGINGS PVT. LTD. MUMBAI

6. MAHINDRA INTER TRADE LTD. MUMBAI

7. GKN DRIVE LINE (INDIA) LTD. DELHI

8. M.R.F. LTD. CHENNAI

9. BREAKS INDIA LTD. CHENNAI

10. LUCAS TVS LTD. CHENNAI

11. RANE (MADRAS) LTD. CHENNAI

12. WHEELS INDIA LTD. PUNE DIVISION. PUNE

13 TATA TOYO RADIOTORS LTD. PUNE

14. SPICER INDIA LTD. PUNE

15. FAIR FIELD ATLAS LTD. KOLHAPUR

16. APPOLLO TYRES WAJODIA DIST.

17. GREAVES COTTON LTD. RANIPET

18. GURUNANAK AUTO ENTERPRICE LTD. GORAYA

19. BHUSHAN STEEL AND STRIPS LTD. SAHIBABAD

20. MAKE SPIRING PVT. LTD. THANE.

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When the vendors list is prepared for a particular month purchase order placed before the vendor for purchasing of the materials.

After the purchase of the supplies from the different vendors inventory is checked, the damaged or spoiled materials segregated vendors vise from their the materials are packed, through transport the rejected materials sent back to the respective vendors.

Other than the rejected materials are kept in the stores 1, 2, 3 ------- on the basis of classification of materials. From the stores department stores are sent to the production plant, in production plant the raw materials are converted into finished products, the produced finished products dispatched from the organization to the market.

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STORES DEPARTMENT

Efficient store-keeping and inventory control in dispensable to the control of material cost. Goods are received into the stores after inspection and they are held and issued to production as and when required. The store department rendering service departments and the accounts departments.

FUNCTIONS OF THE STORE KEEPER

The main function of store keeper are receipt, storage, and issue of materials. There are a few other function which are identical to these. They are :

1. Receive materials into the stores after checking them with the content of the goods received note and the inspection report.

2. Store the material in the allotted places.

3. Maintain stock records entering their receipts, issue and balances.

4. Employ location coding and stores coding for easy identification of every item of stores.

5. Maintain the store department neat and tidy.

6. Protect the materials and preserve them in good condition.

7. Issue materials only against authorised requisitions.

8. Maintain stock levels in respect of every item of stores.

9. Make a physical verification of materials at periodical intervals.

10. Initiate purchase requisitions for the replenishment of stocks.

11. Receive back surplus materials returned and make re-entries of the received back materials.

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TOOLS AND TECHNIQUES OF INVENTORY CONTROLS

1. CLASSIFICATION OF INVENTORY.

2. CODIFICATION OF INVENTORY.

3. JIT ANALYSIS.

4. TWO BIN SYSTEM.

5. KANBAN

6. MILK RUN CONCEPT

7. DETERMINATION OF STOCK LEVELS

8. INVENTORY TURNOVER RATIOS.

CLASSIFICATION OF INVENTORY.

Classification of inventory is of two kinds :

a. Made to stockb. Made to order

In M & M Ltd., made to stock procedure is following for the classification of inventory.

MADE TO STOCK

ABC Classification

This is also referred as “Always better control approach” are the “Alphabetic approach”. ABC Concept of classifying goods in and inventory is very commonly used for exercising effective inventory control. Under this techniques the items in inventory are classified according to the value of usage. The higher the value item have lower safety stocks, because cost of production is very high in respect of higher value items. The lower value items carry higher safety stocks. The annual conception analysis of M & M Ltd., would indicate that handful of top high value items, less than 10% of the total number will account for a substantial portion of above 75% of the total consumption value and such vital few items called A items. Large number of bottom items over 70% of the total number account for only 10% of the consumption value and referred to as C category items. The items that lie between the top and the bottom are referred as B category items.

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Under the ABC analysis M & M using a special concept is XYZ analysis where

ABC represents The value of materials XYZ represents The consumption of materials

The table explanation

% of Items % of Value Category –1 Category –2

10 70 A X

20 20 B Y

70 10 C Z

PURCHASING PROCEDURE OF ABC ITEMS

A ITEMS – 1 TO 3 DAYS

B ITEMS – 2 TO 5 DAYS

C ITEMS – 7 DAYS OR WEEKLY

XYZ CLASSIFICATIONS

X – (Runner Model) :- Which is presently manufacturing.

Y – (Repeater Model) :- It is used in the manufacturing of vehicles.

Z – (Stranger Model) :- Which are consumed less.

AX – ITEMS – Daily Consumption

AY – ITEMS – Time taken for 2 to 3 days for consumption

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AZ – ITEMS – By taking as per order.

ABC analysis helps to concentrate more efforts on A since greatest monetary

advantages will come by controlling these items. An attention should be paid in

estimation requirements, purchasing, maintaining safety stocks and properly storing of

A category materials. These items are kept under a constant review so that a

substantial material cost may be controlled. The control of C items may be relaxed

and these stocks may be purchased for the year. A little more attention should be

given towards B category items and their purchased should be understood quarterly of

half yearly intervals.

M & M following classification of inventory in ABC, XYZ analysis to maintain a

proper stock level according to the flow of the day to day inventory in the organization.

By giving course to the ABC classified inventory it is easy to identify the inventory from

the stores department. It helps to save the time to choose from the stores department,

in selection of the vendors, material holding cost, estimation in expenditure of working

capital, determining in inventory levels and so on…….

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CODIFICATION OF INVENTORY

After the classifying all items of stores, it becomes necessary to allot code numbers to the classified items. The object of classification of only to allot a symbol or code number to every item to facilitate easy location and handling.

In Mahindra & Mahindra Limited the codification of materials done by allotting the number and alphabets.

Numbering system for M & M Ltd.,

In M & M Ltd., each and every part of material consists 10 digit code and code is divided into 4 different goods.

X XX XXXX X

First Group Second Group Third Group Fourth Group

First Group

The first group will be alphabet (Range A to Z) indicates types of standards

Second Group

This will be a two digit numeric and will be in line with existing part numbering system and the two digits are the first two digits indicating the vehicles and associated systems / sub systems.

Third Group

Third Group will be a four digit numerical and will be running serial number for the type of standard applicable

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Fourth Group

This will be a one alphabet will indicate the revision status of the standard.

For Example :- Code for “ASSY CLUTCH CABLE” is

08 02 BA 0690N

Where :

08 is Clutch system

02 is Sub-System – (Sub System)

B is External Controls – Mechanical

A is General

069 is Running Serial Number

0 is M & M Design

N is Colour Code

JIT – JUST IN TIME INVENTORY CONTROL

Just in time purchasing in the purchase of materials and supplies in such a

manner that delivery immediately precedes the demand of use. This will ensure that

stocks are as low as possible. JIT purchasing is implemented by developing closer

relationship with suppliers so that company and suppliers work together operatively.

In JIT purchasing, arrangement is made with supplier for more frequent deliveries of

smaller quantities of materials so that each delivery in just sufficient to meet immediate

production requirements. JIT systems reduce the investment in raw materials and

work in progress stocks.

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JIT purchasing include savings in factory space, large quantity discount and

reduced paper work arising from issuing blanket long term orders to fewer suppliers

instead of purchase orders.

Direct Online (DOL) method is following in JIT system. In JIT A Class items are

purchasing and the time between the purchase of these items are 1 to 2 days.

MILK RUN CONCEPT

It is a new type of inventory classification using by M & M.

Milk Run Concept is a day-to-day purchasing concept. Here the buyer will

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

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

suppliers the estimated trigger value. In milk run concept only quality certified stock

will be delivered the purchaser should estimated the lead time and it is compulsory so

as to have the control over the lead time. It is direct online system there will be

inspection so as to save time and inventory handling cost.

A and B class items are considered under the milk run concept.

Advantages :-

Economical transportable lot (minimum transportation cost per piece)

No inventory carrying cost at plant and at warehouse.

It is direct online system (DOL)

Quality certified stock will be delivered and so no inspection is

required.

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TWO BIN SYSTEM

The material inventory is physically separated into two bins. The quantity contained in the first is used between the time on order is received and the next order is placed. During the lead time the quantity contained in the second bin is made use of the second bin contains enough stock to cover the usage between ordering and delivery plus additional units into the second bin to restore the original quantity and the remaining quantity is put in the first bin.

This method is most suited to the controlling of low value items i.e., C category items.

Under Two Bin system in M & M Ltd., KANBAN Cards system is following. C class items are storing in the bins under KANBAN system.

KANBAN CARD MODEL (BIN CARD)

KAN BAN TYPE KAN BAN QTY.

PART NO :-

DESCRIPTION :-

STORAGE LOCATION :-

SCHEDULE TO RECEIPT TIME IN DAYS BUYER

KAN BAN CARD NO. :-

M & M MAS, ZHB - VSM

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KAN BAN CARD SCHEDULE OF “LOAD KING” VEH ASSY (NEF PRTPE 25 STR)

SL.NO.

PART DISCRIPTION PART NO.I-BIN QUANTITY

IN UNITS1 RUBBER RADIATOR A 97214002 2502 RUB CAB MTG 95154T8001 7003 CLAMP 36458T8008 3004 BUSH SPHERICAL 3446261000 15005 WASHER PLAIN 3441461500 50006 CLIP 270422002 3007 P.R. HOLDER BEARING 3051466300 20008 SEAL OIL FR COVER 3211386401 30009 BALL STEEL 3272014600 100010 SPRING IDLER FORK 3238486400 200011 COVER DUST 3238286401 25012 BALL STEEL 3272036900 100013 PIN RETAINER 3280C0400 250014 PIN INTER LOCK 3281586400 100015 CHECK BALL 3282926700 2000016 PIN SNAP 0092310610 500017 RING SNAP E TYPE 0092251210 250018 RING SNAP E 007540500P 500019 CLAMP 0062151 250020 CLAMP 0062141 750021 GASKET EXHAUST 0903BA0191N 100022 O RING 005110010P 25023 PINDART EL 046510818P 300024 SILENCER A97743003 18025 SILENCER A97743004 21026 VINPLATE A93969006 550027 SPACER A95572002 49728 MAHINDRA LOGO A93769004 30029 ASSY BATTERY CABLE A97241008 86130 CLIP 24210T8000 60031 CLIP COMMON TO 24045T8000 30032 RUBBER MTG 21491T8000 60033 RUBBER EXT MTGA 2013685001 80034 CABLE EARTH 24085T9001 20035 PIVOT W/D LEVER 211200402T 100036 RUBBER EXT MTGB 20137B5001 80037 CLAMP 2404558011 30038 STAY MUD GUARD A93781003 15039 DUST COVER A93361005 400040 GASTEK BREAK 4628375121 300041 O RING 1734218000 25042 INSUL BODY MTG 2ND U 95520T8000 400

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Normal usage Average deliveryPer period time

43 ASSIT GRIP ASSY S93739001 300

DETERMINATION OF STOCK LEVELS

Carrying of to much and too little of inventories is determinate to the firm. If the inventory level is too little, the firm will face frequent stock – outs involving heavy ordering cost and if the inventory level of inventory where costs are the minimum and at the same time their ID.No.Stock-out, which may result in loss of sale or stoppage of production. Various stock levels are discussed below.

MINIMUM STOCK LEVEL

This is the lower limit below which the stock of any item should not normally be allowed to fall. This is also technically known as safety or buffer stock. The prime considerations in fixing the minimum stock level or safety stocks are :

a. Average rate of consumption.b. Lead time.

Minimum Stock Level = Reordering level - X

Lead-Time :

A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. The time taken processing the order and the executing it is known as lead-time. It is essential to maintain some inventory during this period.

Reorder Level :

Reorder level is fixed between the minimum and maximum levels. When stock of a material reaches at this point, the store keeper should initiate action for the purchase of material. The reorder level is slightly more than minimum stock level to guard against

a. Abnormal usageb. Abnormal delay in supply

Reorder level = Maximum consumption X Maximum period requiredduring the period for delivery

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MAXIMUM STOCK LEVEL :

Maximum stock level represents the upper limit beyond which the quantity of any item is not normally allowed to rise. The main object of establishing this limit is to ensure that unnecessary working capital is not blocked in stores. Theoretically, maximum stock level is the sum – total of minimum stock level and economic order quantity.

Maximum level = Reorder Level + Reordering quantity – Minimum consumption

AVERAGE STOCK LEVEL :

The average stock level is calculated as such :

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

DANGER LEVEL :

This is generally fixed below the minimum stock level. Normal stock should not be below the minimum level. If it reaches the danger level at any point of time, urgent action for replenishment of stock must be taken to prevent stock out.

ESTIMATION OF STOCK LEVELS :

There are different techniques used in the calculation of the stock levels.

Reordering Quantity - 2500 units

Reordering Period - 4 – 5 weeks

Weekly usage :-

Maximum usage - 900 units

Normal usage - 700 units

Minimum usage - 500 units

Reordering Level = Maximum consumption X Maximum Reordering Period= 900 X 5 = 4500 units.

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Ex :- Consider “Load King” for calculation purpose.Calculated of the load king vehicle as 500 units.

Normal Daily consumption = 700 units

Normal Reorder period = 4.5 weeks

Reorder level = 4500 units

Minimum usage = 500 units

Minimum Reorder period = 4 weeks

Maximum Reorder period = 5 weeks

MINIMUM STOCK LEVEL

= Reorder Level – (Normal consumption X Normal Reorder Period)

= 4500 – (700 X 4.5)

= 4500 – 3150

= 1350 Units

MAXIMUM STOCK LEVEL

= Reorder Level + Reorder Quantity – (Minimum consumption X

Minimum Reorder Period)

= 4500 + 2500 – (500 X 4)

= 7000 – 2000

= 5000 Units

AVERAGE STOCK LEVEL

= Minimum stock + ½ of Reordering Quantity.

= 500 + (½ X 2500)

= 500 + 1250

= 1750 Units

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Minimum Stock Level = 1350 Units

Average Stock Level = 1750 Units

Maximum Stock Level = 5000 Units

INVENTORY TURN OVER RATIO

“A Ratio which measures the number of times a firms average inventory is sold during a year” – Kohler.

Computation of inventory turn over ratios for different items of materials and comparison of the turnover ratios provide a useful guidance for measuring inventory performance. A high turnover rate indicates that the material in question is a fast moving one. A low turnover rate on the other hand indicates over investments and looking up of working capital on undesirable items.

“Inventory or Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period”. The ratio indicates the number of time the average inventory is consumed and replenished by dividing number of days for which the average inventory is held can be ascertained.

Comparing the number of days in the case of two different materials, it is possible to known which is fast moving and which slow on that basis attempt may be made to reduce the amount of capital locked up and prevent over stocking of slow moving items.

Average Inventory = Opening Stock + Closing Stock 2

Inventory turnover ratio = Material consumed Average Inventory

Inventory turnover in number of days = Number of days in a yearInventory turnover ratio

YEARS 2009 2008 2007 2006 2005 2004

Opening Inventory (Rs. In Lakhs) 75983 49970 45675 46904 55253 51554

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Closing Inventory(Rs. In Lakhs) 78670 75983 49970 45675 46904 55253

INVENTORY TURNOVER RATIO

YEARS

INVENTORY CONSUMED (Rupees in

Lakhs)

AVERAGE INVENTORY(Rupees in

Lakhs)

INVENTORY TURNOVER

RATIO

INVENTORY TURNOVER IN NUMBER

OF DAYS

March – 2009

610570.04

75983+78690

2=77336.5

610570.0477336.5=7.895

3657.895

=46.23

March – 2008

459537.10

49970 + 75983

2= 62976.5

459537.1062976.5= 7.296

365..7.296

= 50.027

March – 2007

335286.52

45675 + 49970

2= 47822.5

335286.5247822.5= 7.01

366..7.01

= 52.21

March – 2006

250021.84

46904 + 45675

2= 46389.5

250021.8446389.5= 5.389

365..5.389

= 67.73

March – 2005

211723.1

55253 + 46904

2= 51078.5

211723.151078.5= 4.145

365..4.24

= 88.05

March – 2004

235858.13

51554 + 55253

2= 53403.5

235858.1353403.5= 4.416

365..4.41

= 82.65

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INVENTORY TURNOVER RATIO

4.416 4.145

5.389

7.01 7.2967.895

0

5

10

2001 2002 2003 2004 2005 2006

INVENTORYTURNOVERRATIO

INVENTORY TURNOVER RATIO

4.416 4.145

5.389

7.01 7.2967.895

0

5

10

2001 2002 2003 2004 2005 2006

INVENTORYTURNOVERRATIO

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2004 2005 2006 2007 2008 2009

2004 2005 2006 2007 2008 2009

- 45 -

2004 2005 2006 2007 2008 2009

A high turnover ratio indicates that the material in question is a fast moving one and also a low amount of stocks are replacing stocks in large number of installments. In the year 2003, 2004, 2005 the stock turnover ratio is gradually decreasing and the inventory turnover in number of days are in high level. This indicates the inventory faced a bad position in these three years. And from 2006, 2007, 2008 the stock turnover ratio continuously increased from 5.38 to 7.296 & the inventory in number of days is low level. This position indicates that the stocks are fast moving and get converted into sales quickly.

VEHICLE PRODUCTION AND DISPATCH

YEARVEHICLE PRODUCTION (QUANTITY IN UNITS)

VEHICLES DISPATCH (QUANTITY IN UNITS)

MARCH 31ST 2007 25,797 25,416

MARCH 31ST 2008 34,186 33,766

MARCH 31ST 2009 33,630 33,885

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2004 2005 2006 2007 2008 2009

The inflow of raw materials and dispatch of finished goods from the organization is in good position. In march 31st 2006 the difference between the vehicle production and dispatched is 381 and in march 31st 2007 the close stock in the go down is also dispatched from the organization and as well as in the year 2007 31st march the stored vehicles are dispatched from the company. This indicates that the consuming storage cost is very low and risk related to preservation of the stock is very less.

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2007 2008 2009

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SUGGESTIONS:

Always in stock to keep production process continuous.

For smooth production should provide adequate supply of items. This inturn will

lead to timely delivery of goods to customers.

They should always make verification of inventory holding cost for the better

control of inventory in the organization and to increase the profitability.

They should maintain the safety stock, so that they can use it when there is

need of the inventory.

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The total cost of inventory should be compared with the total benefits arising out

of inventory for determining its optimum level.

CONCLUSIONS

1.From the various calculations and figures relating to inventory management it is

clear that the inventory classification of A items are maintain for 1 – 3 days, as a result

it reduce investment in raw material, reducing the lead time and also the large quantity

discount because the stock are kept for 1 – 3 days.

2.Class A & B items are consider under the just in time philosophy as the procurement

time has been reduced up to greater extent by the proper co-ordination of buyer and

supplier.

3.There is great improvement in the inventory turnover ratio from 3 years. It is

increased from 5.38 to 7.895% this position indicates that the stocks are fast moving

and get converted into sales quickly in M & M Ltd.,

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4.Finally we conclude that MAHINDRA AND MAHINDRA plant the inventory system is

very good with high Japanese techniques.

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Financial Position at a Glance(Rupees in lakhs)

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Gross Fixed Assets 281044 255927 248913 241677 223148 185892 161464 142653 114642 81314

Net Fixed Assets 147488 139160 146609 153723 148252 123199 109861 101741 81011 53835

Investments 118979 111115 86227 80013 71000 82299 81030 65596 60934 41444

Inventories 75983 49970 45675 46904 55253 51554 43697 51485 44716 38298

Debtors 51153 40048 51708 64778 63201 46158 59207 51657 20805 15550

Other Current Assets 104602 62476 63964 61554 52911 68373 80381 72998 72926 42624

Misc. ExpenditureNot written off

2438 964 3972 22361 15516 9684 5988 3623 1819

Long-term 94140 65203 107190 119180 79088 84481 133457 115147 95847 16809

Borrowings Short-term

11122 7778 6794 18526 34304 10886 13162 18363 6924 20976

Current Liabilities and Provisions

175180 132924 09478 105074 92704 90021 87027 81623 71559 61070

Deferred Tax Liability (Net)

18975 20325 17710 13790

Equity Capital 11601 11601 11601 11601 11049 11049 10337 10337 10179 10179

Reserves 189625 165902 145392 138801 195833 190662 139877 99506 84536

Net WorthBook Value Per Share (Rupees

201226

168.35

177503

149.15

156983

130.56

150407

128.26

20688

165.50

201711

166.90

150714

134.14

13413

122.29

1096

102.20

9471

Book value per share is calculated after reducing Intangible Assets, Miscellaneous Expenditure not written off and Revaluation Reserve from Net Worth.

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- 53 -

BIBILOGRAPHY :

* Cost Accounting – V.K. Saxena C.D. Vashist

* Cost Accounting - S.P. Iyenger

* Cost Accounting - S.N. Maheshwari

* Financial Management - Khan & Jain

* Cost ManagementAccounting - R.P. Thrivadi

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