A PROJECT REPORT INVENTORY MANAGEMENT

AT

HERO MOTOCORP LTD.

MASTER OF BUSINESS ADMINISTRATION

Submitted by:

ACKNOWLEDGEMENT

Accomplishment of a task with desired success calls for dedication

towards work and prompting guidance, co-operation and deliberation from seniors. This report is the outcome of the project that I did in ero !otocorp "td. It gi#es me immense pleasure to acknowledge m$ deep sense of gratitude and sincere thanks to !r. !. %. Arora &!anager, %tore' and to !r. (ajender )al &*+ecuti#e %tore' for agreeing for the project and pro#iding me necessar$ information for completion of project. I am e+tremel$ grateful to !r. ,,,,,,,,,,,,,,,,,,,,, for his #aluable guidance and glorious teaching. In last, I e+press m$ profound gratefulness and indebtedness to the esteemed organi-ation for granting me the grand pri#ilege of working on a project under team of e+perts and professionals in the field of in#entor$.

PREFACE !/A program is one of the most reputed professional courses in the field of management. This course includes both theor$ and its applications as its content of curriculum. The project is an integral part of the curriculum and its purpose is to pro#ide the practical e+posure of business world in the changing scenario. In this wa$ it helps the student in de#elopment of practical skills and anal$tical thinking process. It helps in moldings the students according to the re0uirement of the market. *ach student is re0uired to complete the project in his or her field of interest

The purpose of the project is to e+pose the students on practical and research front of his or her area of interest. The project gi#es a uni0ue e+perience to aspirants who can #isuali-e things what the$ ha#e been taught in classroom. I was fortunate enough to ha#e the opportunit$ to do a project on in#entor$ management at ero !otocorp "td.

I ha#e tried m$ best and ha#e applied all m$ efforts, knowledge and sources a#ailable, in this project. Throughout the project the focus has been on presenting information and comments in eas$ and intelligible manner.

TABLE OF CONTENT Chapter No. $ Executi e !u""ar# Theoretica% Fra"e&or' o( )n entor# Manage"ent )ntro*uction Meaning an* Nature o( )n entor# Purpo+e,Bene(it+ o( ho%*ing in entor# Ri+' an* Co+t o( ho%*ing in entor# )n entor# Contro% )"portance o( in entor# Contro% E++entia% o( goo* )n entor# Contro% Techni-ue+ o( )n entor# Contro% O/0ecti e an* Re+earch Metho*o%og# O/0ecti e o( the !tu*# Re+earch Metho*o%og# !ource+ o( Data Co%%ection Li"itation+ Co"pan# Pro(i%e )ntro*uction 2i+ion Mi++ion !trateg# Manu(acturing Di+tri/ution Pro*uct port(o%io Proce++ F%o& chart )n entor# Manage"ent at 4ero Motocorp Lt*. Materia% Manage"ent C#c%e Content Page No.

Functiona% !trategie+, O/0ecti e+ o( in entor# "anage"ent at 4ero Motocorp Purcha+e Contro%

Purcha+e Proce*ure
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Proce++ o( Receipt o( Materia% !torage contro% O/0ecti e o( +tore+ Di i+ion+ o( !tore Accounting Contro% 2a%uation o( "ateria% i++ue C%a++i(ication o( in entor# Too%+ an* Techni-ue+ o( )n entor# Manage"ent E+ti"ation o( *i((erent co+t o( ho%*ing in entor# E+ti"ation o( !toc' Le e%+ o( +uper +p%en*or )n entor# ratio+ Fin*ing+ !ugge+tion+ Bi/%iograph#

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E8EC9T)2E !9MMAR:
To be successful in toda$3s fast-paced, highl$-competiti#e en#ironment, organi-ations need to ha#e the necessar$ parts in stock or ha#e reliable suppliers to meet customer

demands at a moment3s notice. *ither wa$, organi-ations must ha#e a practical, efficient method for managing in#entor$ in order to sta$ in business and satisf$ their customers. *ffecti#e In#entor$ !anagement enables an organi-ation to meet or e+ceed customers3 e+pectations of product a#ailabilit$ while ma+imi-ing net profits or minimi-ing costs. The three primar$ functions that characteri-e the occupation are management, coordination, and control of in#entor$ and s$stems of in#entor$ management. !anagement of in#entor$ records and rele#ant details is an important area of concern for e#er$ organi-ation, whether it is large or small. And also calls for efficient planning and maintenance. 5o matter the #iewpoint, effecti#e in#entor$ management is essential to suppl$ chain competiti#eness.

In#entor$ is a list for goods and materials, or those goods and materials themsel#es, held a#ailable in stock b$ a business. In#entor$ are held in order to manage and hide from the customer the fact that manufacture6suppl$ dela$ is longer than deli#er$ dela$, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacit$ stands idle for lack of materials.

In#entor$ management, or in#entor$ control, is an attempt to balance in#entor$ needs and re0uirements with the need to minimi-e costs resulting from obtaining and holding in#entor$. It deals with the maintenance of e0uipments. It is a discipline that encompasses the principles, concepts and techni0ues for determining what to order, when to order and how much to order. The right amount of in#entor$ in#ol#es the balance between what is re0uired to ser#ice customers and what is financiall$ practical. )recise control and safeguarding of in#entor$ is an essential task for a successful, well-organi-ed compan$. /usinesses re0uire timel$ and accurate information on in#entor$ location, mo#ement, and #aluation. Inaccurate in#entor$ counts can cost $ou sales and dela$ shipments past the promise date. 7ut-of stock items as well as o#erstocked items in in#entor$ can be de#astating to business. Additionall$, an

o#erstated or understated in#entor$ #aluation can result in incorrectl$ reported assets within financial statements. )roperl$ used, the In#entor$ !anagement module can help bring about the formulation of new or impro#ed purchasing policies, sales policies, pricing methods, and e#en enhanced customer ser#ice. This project is about in#entor$ management s$stem of ero !otocorp "td. )roject

starts with theoretical framework of in#entor$ management, its benefits, in#entor$ management techni0ues and #aluation of in#entor$. %econd chapter deals with objecti#e and research methodolog$. Third chapter is about compan$ profile, its products, mission, #ision etc. 9orth chapter is about the in#entor$ management at ero !otocorp. ow compan$ manages its in#entor$ and what are the in#entor$ control techni0ues used b$ the compan$ were studies in this chapter. %uggestions were made to impro#e efficienc$ of the in#entor$ management. I ha#e used both primar$ as well as secondar$ data.

C4APTER ;$ T4EORET)CAL FRAMEWORK OF )N2ENTOR: MANAGEMENT

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)NTROD9CT)ON

*#er$ enterprise needs in#entor$ for smooth running of acti#ities. It ser#es, as a link between production and distribution. 9or e#er$ process there is, generall$, a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher the re0uirement for in#entor$. The unforeseen fluctuations in demand and suppl$ of goods also necessitate the need for in#entor$. It pro#ides a cushion for future price fluctuations. The in#estment in in#entories constitutes the most significant part of current assets6working capital in most of the undertakings. Thus, it is #er$ essential to ha#e proper control and management of in#entories. The purpose of in#entor$ management is to ensure a#ailabilit$ of materials in sufficient 0uantit$ as and when re0uired and also to minimi-e in#estment in in#entories. The in#estment in in#entor$ is #er$ high in most of the undertakings engaged in manufacturing, wholesale and retail trade. In India, a stud$ of .; major industries has re#ealed that the a#erage cost of materials is 84paise and the cost of labor is 1<paise and o#erheads is 14paise of a rupee, 1<=is profit. It is necessar$ for e#er$ management to gi#e proper attention to in#entor$ management. A proper planning of purchasing, handling, storing and accounting should form a part of in#entor$ management. An efficient s$stem of in#entor$ will determine, >hat to purchase ow to purchase

9rom where to purchase >here to store etc.,

There are conflicting interests of different departmental heads o#er the issue of in#entor$. The finance manager will tr$ to in#est less in in#entor$ because to him it is an idle in#estment, where as production manager will emphasis to ac0uire more in#entor$ as he does not want an$ interruption in production due to shortage of in#entor$. The purpose of in#entor$ management is to keep the stocks in such a neither wa$ that there is o#er-stocking nor under-stocking. The o#er-stocking will mean a reduction of li0uidit$ and star#ing of other production processes whereas under-stocking, on other hand, will result in stoppage of work. The in#estments in in#entor$ should be kept in reasonable limits.

MEAN)NG AND NAT9RE OF )N2ENTOR:

There are different meanings of in#entor$ in different languages. In accounting language it ma$ mean stocks of finished goods onl$. In a manufacturing concern, it ma$ include raw materials@ work in process and stores, etc., to understand the e+act meaning of the work in#entor$

)n entor# ma$ include the following thingsA $. RAW MATER)AL!<

(aw materials form a major input into the organi-ation. The$ are re0uired to carr$ out production acti#ities uninterruptedl$. The 0uantit$ of raw materials re0uired will be determined b$ the rate of consumption and the time re0uired for replacing the supplies. The factors like the a#ailabilit$ of raw materials and go#ernment regulations, etc., too affect the stock of raw materials.

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WORK;)N;PROGRE!!<
The work-in-progress is that stage of stocks, which are in between raw

materials and finished goods. The raw materials enter the process of manufacturing but the$ are $et to attain a final shape of finished goods. The 0uantum of work-in-

progress depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing, the more will be the amount of work-in-progress.

1. CON!9MABLE!<
These are the materials, which are needed to smoothen the process of production. These materials do not enter directl$ into production but the$ act as catal$sts. Bonsumables ma$ be classified according to their consumption and criticalit$. Cenerall$, consumables stores do not create an$ suppl$ problem and form a small part of production cost. There can be instances where these materials ma$ account for much #alue than the raw materials. The fuel oil ma$ form a substantial part of the cost.

3. F)N)!4ED GOOD!<
These are goods, which are read$ for the consumers. The stock of finished goods pro#ides a buffer between production and market. The purpose of maintaining in#entor$ is to ensure proper suppl$ of goods to the customers. In some concerns the production is under taken on order basis. In these concerns there will not be a need for finished goods in#entor$. The need for finished goods in#entor$ will be more when production is undertaken in general without waiting for specific orders.

5. !PARE!<
%pares also form a part of in#entor$. The consumption pattern of raw materials, consumables, finished goods are different from that of spares. The stocking policies of spares are different from industr$ to industr$. %ome industries like transport will re0uire more spares than the other concerns. The costl$ spare parts like engines, maintenance spares etc., are not discarded after use. (ather the$ are kept in read$ positions for further use. All decisions about spares are based on the financial cost of in#entor$ on such spares and the cost that ma$ arise due to their nona#ailabilit$

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P9RPO!E,BENEF)T! OF 4OLD)NG )N2ENTOR:

Another important element in the determination of optimum in#entor$ le#el, relates to the benefits of holding in#entories. In#entories perform certain basic functions which are of #er$ much importance in firmDs production and marketing strategies. According to E7 5%75 (.>. &9inancial management' the basic function of in#entories to act as a buffer to decouple or uncouple the #arious acti#ities of a firm so that all do not ha#e to be pursued at e+actl$ the same rate. The term uncoupling means that the ke$ acti#ities of a firm #i-., purchasing, producing and selling, which are closel$ interrelated, can be carried on independentl$. If in#entories are not held, purchasing and production would be completel$ controlled b$ the sales schedule. If sales increase, the need for purchase and production will increase and #ice #ersa. /ut, if in#entories are held, each acti#it$ can be carried out independentl$ and efficientl$. The following are the benefits of holding in#entor$. $. Bene(it+ in purcha+ing< If the purchasing is carried on independentl$ i.e. without up to production or sales, the firm can purchase large 0uantities than is warranted b$ usage in production or the sales le#els. This will enable the firm to get certain ad#antages. 9irstl$, the bulk purchasing enables the firm to get trade discounts. %econdl$, ordering costs can be minimi-ed b$ placing fewer orders for a large amount. Thirdl$, large in#entor$ ser#es as a hedge against increasing prices. 9ourthl$, bulk purchasing also pro#ides a hedge against labour trouble. .. Bene(it+ in pro*uction< The basic objecti#e of holding finished goods in#entor$ is to separate production and sales acti#ities. This enables the firm to undertake production at a rate different and sales at different rate. If the firms demand is seasonal in nature, management has to courses open. 9irst it can produce production when sales are high and reduce production when sales or low. %econd, it ma$ produce continuousl$ throughout the $ear and build up in#entor$ which will be sold during the period of seasonal demand. 11

The former in#ol#es discontinuit$ in production while the latter ensure stabili-ed production. !an$ ad#antages ac0uire from stabili-ed production. a' Impro#ed worker morale and possibl$ greater efficienc$. b' (educed peak-load production and fewer o#ertime charges. c' (eduction of certain costs which result from idle e0uipment. d' Bertain economies made possible through the purchase of raw materials. 1. Bene(it+ in +a%e+< The maintenance of in#entories enables the firm to enhance its sales efforts. If the firm has no in#entor$ of finished goods, its le#el of sales will depend upon its current production le#el. The firm ma$ not be able to meet the demand instantaneousl$ had the customers ma$ switch to other firms who can suppl$ at short notice. Thus, the objecti#e of in#entor$ management relate to the minimi-ation of in#entor$ on the one hand and the need to ensure sufficient in#entor$ to assure continuit$ of production and sales operations. Thus, both the objecti#es of in#entor$ management conflict with each other. The optimum le#el of in#entor$ should be determined in terms of trade off between costs and benefits associated with in#entor$ management.

R)!K AND CO!T! OF 4OLD)NG )N2ENTOR)E!

The holding of in#entories in#ol#es blocking of firmDs funds and incurrence of capital and other costs. It also e+poses the firm to certain risks. The #arious costs and risks in#ol#ed in holding in#entories are as belowA

$. CAP)TAL CO!T!<
!aintaining of in#entories results in blocking of the firmDs financial resources. The firms ha#e, therefore, to arrange for additional funds to meet the costs of in#entories. The funds ma$ be arranged from, own resources or from outsiders. /ut, in both cases,

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the firm incurs a cost. In the former case, there is opportunit$ cost of in#estment while in the later case, the firm has to pa$ interest to the outsiders.

.. !TORAGE AND 4ANDL)NG CO!T!<

olding of in#entories also in#ol#es cost on storage as well as handling of materials. The storage costs include the rental of the go down, insurance charges, etc.

R)!K OF PR)CE DECL)NE<

There is alwa$s a risk of reduction in the prices of in#entories b$ the suppliers in holding in#entories. This ma$ be due to increased market supplies, competition or general depression in the market.

R)!K OF OB!OLE!CENCE<
The in#entories ma$ become obsolete due to impro#ed technolog$, changes in re0uirements, change in customerDs tastes etc.

)n entor# contro%< A firm needs an in#entor$ control s$stem to effecti#el$ manage its in#entor$. There are se#eral in#entor$ control s$stems in #ogue in practice. The$ range from simple s$stems to #er$ complicated s$stems. The nature of business and the si-e dictate the choice of an in#entor$ control s$stem .9or e+ample@ a small firm ma$ operate a twobin-s$stem. Fnder this s$stem, the compan$ maintains two bins. 7nce in#entor$ in one bin is used, an order is placed, and means while the firm uses in#entor$ in the second bin .9or a larger departmental store that sells hundreds of items, this s$stem is 0uite unsatisfactor$. The departmental store will ha#e to maintain a self-operating, automatic computer s$stem for tracking the in#entor$ position of #arious items and placing order. The main objecti#e of in#entor$ control is to achie#e ma+imum efficientl$ in production and sales with the minimum in#estment in in#entor$.

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 )"portance o( in entor# contro%A

The importance or necessit$ of in#entor$ control is well e+plained in terms of the objects of in#entor$ control which are obtained through it. A proper in#entor$ control lowers down the cost of production and impro#es the profitabilit$ of the enterprise. ere are certain specific ad#antages of in#entor$ controlA 1' (eduction in In#estment in In#entor$. .' )roper and efficient use of raw material. 1' 5o bottleneck in production. 2' Impro#ement in )roduction and %ales. 4' *fficient and optimum use of ph$sical as well as 9inancial (esources. E!!ENT)AL OF GOOD )N2ENTOR: CONTROL !:!TEM< 1' Blassification and codification of in#entories b$ allotting proper code number to each item and group and regroup on some basis. .' %tandardi-ation and simplification of in#entories in order to maintain 0ualit$ and reduce the number of items. 1' Ade0uate storage facilit$. 2' %etting different le#els and reorder point for each item of in#entories. 4' 9i+ing *conomic 7rder Guantit$. 8' *+perienced personnel for handling in#entories properl$. :' Intelligent and e+perienced )ersonnel. ?' Bo-ordination. ;' /udgeting. 1<' Internal Bheck. The in#entor$ includes stock of raw materials, semi-finished goods, finished goods and components etc. of se#eral descriptions. In order facilitate prompt recording, locating and dealing, each item of in#entor$ should be assigned a particular code for proper identification and must be di#ided in groups on basis of location, nature of item, plant etc. 12

Techni-ue+ o( in entor# contro% *ffecti#e in#entor$ management re0uires an effecti#e control s$stem of in#entories. A proper in#entor$ control not onl$ helps in sol#ing the acute problem of li0uidit$ but also increases profits and causes substantial reduction in the working capital of the concern. The following are the important techni0ues of in#entor$ control. 1. %etting of #arious stocks le#els. .. A/B anal$sis. 1. Two bin s$stem. 2. *stablishment of s$stem of budgets. 4. Fse of perpetual in#entor$ records and continuous stock #erification. 8. Hetermination of *conomic 7rder Guantit$ &*.7.G'. :. (e#iew of slow and non-mo#ing items. ?. Fse of control ratios. $. !etting o( ariou+ +toc'+ %e e%< Barr$ing of too much little of in#entories is determined to the firm, if the in#entor$ le#el is too little the firm will face fre0uent stock outs in#ol#ing hea#$ ordering cost and if the in#entor$ le#el is too high it will be unnecessar$ tie up to capital. Therefore, an efficient in#entor$ management re0uires that a firm should maintain an optimum le#el of in#entor$ costs are the minimum and at a same time there is not stock out which ma$ result in loss of sale or stoppage production of #arious stock le#els are discussed as such. Re;or*ering %e e%< It is the point at which if stock of a particular material in store approaches, the storekeeper should initiate the purchase re0uisition for fresh supplies of that material. This le#el is fi+ed somewhere between the ma+imum and minimum le#els in such a wa$ that the difference of 0uantit$ of the material between the re-ordering

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le#el and the minimum le#el will be sufficient to meet the re0uirements of production up to the time the fresh suppl$ of the material is recei#ed. (e-ordering le#el can be calculated b$ appl$ing the following formula. Re;or*ering %e e% =Maxi"u" Con+u"ption x Maxi"u" re;or*er perio*. 7r Re;or*ering %e e% = !a(et# +toc' > ?A erage *ai%# con+u"ption 8 A erage *e%i er# perio*@ Where< !a(et# +toc'= Annua% De"an* 8 ?Maxi"u" %ea* ti"e AA Nor"a% %ea* ti"e@ 165 Mini"u" %e e%< It indicates the lowest figure of in#entor$ balance, which must be maintained in hand at all times, so that there is no stoppage of production due to non-a#ailabilit$ of in#entor$. The main consideration for the fi+ation of minimum le#el of in#entor$ is as followsA 1' Information about ma+imum consumption and ma+imum deli#er$ period in respect of each item to determine its re-order le#el. .' A#erage rate of consumption for each in#entor$ item. 1' A#erage deli#er$ period for each item. This period can be calculated b$ a#eraging the ma+imum and minimum period. The formula used for its calculation is as followsA Mini"u" Le e% o( in entor# = Re;or*er %e e% A ?Nor"a% con+u"ption 8 nor"a% re;or*er perio* @ Maxi"u" %e e%< It represents the ma+imum 0uantit$ of an item of material which can be held in stock at an$ time. %tock should not e+ceed this 0uantit$. The 0uantit$ is fi+ed so that there ma$ be no o#erstocking. The ma+imum stock le#el is fi+ed b$ taking into account the following factors. Amount of capital a#ailable for maintaining stores. Codown space a#ailable.

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 !a+imum re0uirement of the stores for production purposes at an$ point of time. (ate of consumption of the material during the lead time. The time lag between indenting and recei#ing of the material. )ossibilit$ of loss in stores b$ deterioration, e#aporation etc. Bost of maintaining stores. "ikel$ fluctuation in prices. The seasonal nature of suppl$ of material. Bertain materials are a#ailable onl$ during specific periods of the $ear, so these ha#e to be stocked hea#il$ during these periods. (estrictions imposed b$ the go#ernment or local authorit$ in regard to material in which there are inherent risks e.g. fire and e+plosion. )ossibilit$ of change in fashion and habit which will necessitate change in re0uirement of materials. Maxi"u" %e e% o( in entor#= Reor*er %e e% > Reor*er -uantit# AA ?Mini"u" con+u"ption 8 "ini"u" re; or*ering perio*@ A erage +toc' %e e%< The a#erage stock le#el is calculated b$ the following formulaA A erage +toc' %e e% = Mini"u" +toc' %e e% > ?$,. o( re;or*er -uantit#@ Danger %e e%< >hen the stock le#el falls below the minimum le#el, it reaches the danger le#el, when immediate action is to be taken for replenishment of stock. Danger %e e%= A erage con+u"ption 8 %ea* ti"e (or e"ergenc# purpo+e+. .. !toc' contro% through ABC ana%#+i+< !anufacturing organi-ation find it useful to di#ide materials into three categories for the purposes of e+ercising selecti#e control on materials.

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An anal$sis of the material costs will show that a smaller percentage of items of materials in the stores ma$ contribute to a large percentage of the #alue of consumption and, on the other hand, a large percentage of times ma$ represent a smaller percentage of the #alue of items consumed. Items falling in the first categor$ are treated as A items, of the second categor$ as / items and items of the third categor$ are taken as B items. %uch an anal$sis of material is known as A/B anal$sis. This techni0ue of stock control is also known as stock control according to #alue method or alwa$s better control method or proportional parts #alue anal$sis method .Thus, under this techni0ue of material control, materials are listed in IAD, I/Dand IBD categories in descending order based on mone$ #alue of consumption. A/B anal$sis measures the cost significant of each item of material. It concentrates on important items. %o it is also known as contro% /# )"portance an* ExceptionB CC.).ED. The report of the I5HIA5 producti#it$ Team on %tores J In#entor$ control in F.%.A, EA)A5 and >*%T C*(!A5K gi#es the following e+ample of A/B anal$sisA Categor# A B C Tota% E o( )te"+ $5 15 5G $GG ABC ana%#+i+ o( in entor# ite"+ E o( 2a%ue FG $5 5 $GG

The significant of this anal$sis is that a #er$ close control is e+ercised o#er the items of IAD group which account for a high percentage of costs while less stringent control is ade0uate for categor$ I/D and #er$ little control would suffice for categor$ IB items. A* antage+< A strict control is e+ercised on the item which represents a high percentage of the material costs. !anagerial time is spent on IAD items whereas IBD items and sometimes I/D items can be handled b$ clerical staff with least managerial super#ision. 1' In#estment in in#entor$ is reduced to the minimum possible le#el because a responsible 0uantit$ of IAD items representing a significantl$ portion of the material costs is purchased. To reduce in#estment in materials, close control IAD items contributes much more than close control of IBD items.

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.' %torage a cost is reduced as a reasonable 0uantit$ of materials, which account for high percentage of #alue of consumption will be maintained in the stores. 1. T&o /in +#+te"< Fnder this s$stem each bin is di#ided into two partsL one, smaller part, should stock the 0uantit$ e0ual to the minimum stock or e#en the re-ordering le#el, and the other to keep the remaining 0uantit$. Issues are made out of the large part@ but as soon as it becomes necessar$ to use 0uantit$ out of the smaller part of the bin, fresh order is placed. Two bin s$stems is supplemental to the record of respecti#e 0uantities on the bin card and the stores ledger card. 3. E+ta/%i+h"ent o( +#+te" o( /u*get+<

To control in#estment in the in#entories, it is necessar$ to know in ad#ance about the in#entories re0uirement during a specific period usuall$ a $ear. The e+act 0uantit$ of #arious t$pes of in#entories and the time when the$ would be re0uired can be known b$ stud$ing carefull$ production plans and production schedules. /ased on this, in#entories re0uirement budget can be prepared. %uch a budget will discourage the unnecessar$ in#estment in#entories. 5. 9+e o( perpetua% in entor# recor*+ an* continuou+ +toc' eri(ication< Perpetua% in entor# +#+te"A Fnder this s$stem a continuous record of receipt and issue of materials is maintained b$ the stores department and the information about the stock of material is alwa$s a#ailable. BI!A defines perpetual in#entor$ s$stem as the recording as the$ occur of receipts, issues and the resulting balances of indi#idual items of stock in either 0uantit$ or 0uantit$ and #alue. In this s$stem the entries are made in bin cards and stores ledger as and when the receipts and issues of materials take place and ascertaining the balance after e#er$

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receipt or issue of materials. The stocks as per the dual records namel$ bin card and stores ledger are reconciled on a continuous basis. A* antage+< This s$stem a#oids the disruptions to production or trading caused b$ the periodic stock taking. This s$stem facilitates production planning and in#entor$ control. )erpetual in#entor$ s$stem is efficientl$ maintained with continuous stock taking. The perpetual in#entor$ s$stem a#oids the necessit$ of stock taking b$ actual at the end of financial period. %tock can be taken for the purpose preparation of profit and loss account and balance sheet. It helps in ha#ing a detailed and more reliable check on the stocks. The stocks records are more reliable and stock discrepancies are in#estigated and appropriate actions are taken immediatel$. Perio*ic +toc' ta'ing +#+te"< Fnder this s$stem the stock le#els are re#iewed at fi+ed inter#als e.g. at the end of e#er$ month or three months. All the items of stocks in the store are re#iewed periodicall$. BI!A defines periodic stock taking as a process whereb$ all stock items are ph$sicall$ counted and then #alued. The aim of periodic stock taking is to find is to find out the ph$sical 0uantities of materials of all t$pes are ph$sicall$ counted at a gi#en date. A team of stock checkers should be allocated to count all stock in one area, to ensure that all stock is counted once, and that no omission or duplications occur. In the office, the completed stock sheets should be collated and totaled, and the 0uantities checked against the stock records. %enior staff or auditors should perform sample checks on a number of items. All staff in#ol#ed should be issued with stock taking instructions well before the date of the actual count. 7ften non-stores staff ill be in#ol#ed in the count.

.<

 An$ stocks showing discrepancies should be recounted, and if still not resol#ed should be reported to management. %tock checkers should enter amounts counted on preprinted stock sheets. A Icut-offD time should be set, after which no mo#ement of stock is allowed until the count has been completed. 8. Deter"ination o( Econo"ic Or*er Huantit# CE.O.HD< The total costs of a material usuall$ consist ofA Total ac0uisition cost M Total ordering cost M Total carr$ing cost. Total ac0uisition cost through bu$ing is usuall$ unaffected irrespecti#e of the 0uantit$ of material ordered at one time unless 0uantit$ discounts are a#ailable. The 0uantit$ of materials to be ordered at one time is known as economic ordering 0uantit$. This 0uantit$ is fi+ed in such a manner as to minimi-e the cost of ordering and carr$ing the stock. Carr#ing co+t+< It is the cost of holding the materials in the store and includesA Bost of storage space which could ha#e been utili-ed for some other purpose. Bost of bins and racks that ha#e to be pro#ided for the storage of materials. Bost of maintaining the materials to a#oid deterioration. Amount of interest pa$able on the mone$ locked up in the materials. Bost of spoilage in stores and handling. Transportation costs in relation to stock. Bost of obsolescence on account of some of the materials becoming obsolete after some time of storage either due to change in the process or product. Insurance cost. Blerical cost etc. Or*ering co+t< It is the cost of placing orders for the purchase of materials and includesA 1' Bost of staff posted in the purchasing department, inspection section and pa$ment department. .' Bost of stationer$, postage and telephone charges.

.1

*.7.G N >here *7G N economic order 0uantit$.

.F7 B

F N consumption of the material concerned in units during a $ear. 7 N Bost of placing one order including the cost of recei#ing the Coods i.e. cost of getting an item into the firmDs in#entor$. B N holding costs of in#entor$ 7.F per $ear A++u"ption+< 1' There are d$namic conditions of the suppl$ which enable a firm to man$ orders as it needs. .' )rices of the item remain stable which keep carr$ing cost constant. 1' The 0uantit$ of the item to be consumed during a particular period is totall$ known i.e. 0uantit$ to be consumed is certain. 7. Re ie& o( +%o& an* non;"o ing ite"+< %ometimes, due to high #alue of slow mo#ing and non-mo#ing raw materials, it appears that the concern has blocked huge sum of mone$ unnecessaril$ in raw materials. To o#ercome this problem, it is necessar$ to dispose Loff as earl$ as possible, the non-mo#ing items or make arrangements for their e+change with the in#entories re0uired b$ the concern. /esides this no new re0uisition should be made for the purchase of slow mo#ing items, till the e+isting stock is e+hausted. Bomputation of in#entor$ turno#er ratio ma$ help in identif$ing slow mo#ing items. F. 2ED Ana%#+i+< O*HLL #ital, essential and desirableLL anal$sis is used primaril$ for control of spare parts. The spare parts can be di#ided into three categoriesLL #ital, essential or desirable keeping in #iew the criticalit$ of production. The spares, the stock-out of which e#en for a short time will stop production for 0uite some time and where the cost of stock out is #er$ high, are known as #ital spares, the spares, the absence of which cannot be tolerated for more than a few hours or a da$ and the cost of lost production is high and which are essential for the production to .. ace as

continue, are known as essential spares. The desirable spares are those spares which a are needed but their absence for e#en week or so will lead to stoppage of production. %ome spares, though negligible in monetar$ #alue, ma$ be #ital for the production to continue and re0uire constant attention. %uch spares ma$ not recei#e the attention the$ deser#e if the$ are maintained according to A/B anal$sis because their #alue of consumption is small. %o, in their cases, O*H anal$sis is made to get the effecti#e result. I. )nput A Output Ratio< Input-7utput ratio is used in material control, which indicates the relation between the 0uantit$ of material used in the production and the 0uantit$ of final output. 9or e+ample, if 4<< units of material is introduced into the process or operation and the $ield of final product is 2<< units, the Input-output ratio is calculated as followsA Input L 7utput (atio N Input Fnits 6 7utput +1<< A* antage< The ad#antage of anal$sis of input-output ratios is gi#en belowA It helps in material planning b$ estimation of output and its raw material re0uirement. The standard input-output ratio act as guide in control of materials used in the process b$ minimi-ation of waste, scrap, spoilage and defecti#es. It acts as a performance indicator of particular production cost centers. It helps the management in in#estigation and anal$sis of an$ #ariation is material usage b$ establishing relation between input and output. The cost-benefit anal$sis of use of different substitutes of raw material is possible b$ comparing each of the input-output ratios. $G. !toc' turno er ratio< The stock turno#er ratio indicates the mo#ement of a#erage stock holding of each item of material in relation to its consumption during the accounting period. The stock turno#er ratio is calculated b$ appl$ing the following formula. Bost of materials used during the period A#erage stock of materials used during the period

.1

/$ comparing the number of da$s in the case of two different materials, it is possible to know which is fast mo#ing and which is slow mo#ing. 7n this attempt should be made to reduce the amount of capital locked up, and pre#ent o#er-stocking of the slow mo#ing items.

C4APTER ;. OBJECT)2E AND RE!EARC4 MET4ODOLOG:

OBJECT)2E OF T4E !T9D:
To stud$ in#entor$ management s$stem of ero !otocorp "td.
To anal$-e the stock le#els like reordering le#el, minimum stock le#el, ma+imum stock le#el, and in#entor$ control method. To anal$-e the #arious costs in#ol#ed in the in#entor$ management. To e#aluate the process of suppl$ chain management. To anal$-e whether EIT &just in time' s$stem can be implemented or not.

To understand the problems faced b$ compan$ in handling in#entor$.

To gi#e suggestions relating to efficient utili-ation of in#entories in !otocorp "td. ero

.2

RE!EARC4 MET4ODOLOG:
An$ of the abo#e s$stematic and scientific research lies in its methodolog$ gi#ing a clear idea of the forms of stud$ and procedure adopted in conducting it and stating the purpose become essential parts of e#er$ stud$. ere, In this )roject research design used is *+plorator$ t$pe.

!O9RCE! OF DATA COLLECT)ON )rimar$ data will be collected through inter#iew of official staff. At the same time other departments will also be #isited. The$ are as followsA !ain Bash Hepartment /illing and 7peration Hepartment *+cise Hepartment. %ales Hepartment Annual (eports In#entor$ (eports Bash (eport (aw !aterials (eport )roduction (eports %ales (eports 9inancial Kear /ook. !aga-ines, /ooks and >ebsite of the compan$. %econdar$ data will be collected through

.4

L)M)TAT)ON!<
1' This project is restricted to stud$ purpose onl$ and can be used keeping in #iew the object that is made for. .' The respondent in the project ma$ not re#eal important 6 confidential information pertaining to the compan$ polic$ and for this the project should be used keeping in #iew the said limitation.

1'

9inding of the stud$ will be based on the assumptions that respondents ha#e gi#en correct information.

.8

C4APTER ;1 COMPAN: PROF)LE

)ntro*uction ero !otoBorp "td. &9ormerl$ ero onda !otors "td.' is the world3s largest

manufacturer of two - wheelers, based in India. In .<<1, the compan$ achie#ed the co#eted position of being the largest two-wheeler manufacturing compan$ in India and also, the 3>orld 5o.13 two-wheeler compan$ in terms of unit #olume sales in a calendar $ear. maintain this position till date. ero !otoBorp "td. continues to

2)!)ON The stor$ of ero onda began with a simple #ision - the #ision of a mobile and an empowered India, powered b$ its two wheelers. ero !otoBorp "td., compan$3s new identit$, reflects its commitment towards pro#iding world class mobilit$ solutions with renewed focus on e+panding compan$3s footprint in the global arena.

M)!!)ON ero !otoBorpDs mission is to become a global enterprise fulfilling its customers3 needs and aspirations for mobilit$, setting benchmarks in technolog$, st$ling and 0ualit$ so that it con#erts its customers into its brand ad#ocates. The compan$ will pro#ide an engaging en#ironment for its people to perform to their true potential. It will continue its focus on #alue creation and enduring relationships with its partners.

!TRATEG: ero !otoBorpDs ke$ strategies are to build a robust product portfolio across categories, e+plore growth opportunities globall$, continuousl$ impro#e its

.:

operational efficienc$, aggressi#el$ e+pand its reach to customers, continue to in#est in brand building acti#ities and ensure customer and shareholder delight.

MAN9FACT9R)NG ero !otoBorp two wheelers are manufactured across 1 globall$ benchmarked manufacturing facilities. Two of these are based at Curgaon and Hharuhera which are located in the state of ar$ana in northern India. The third and the latest manufacturing plant is based at aridwar, in the hill state of Fttrakhand.

D)!TR)B9T)ON The Bompan$3s growth in the two wheeler market in India is the result of an intrinsic abilit$ to increase reach in new geographies and growth markets. ero !otoBorpDs e+tensi#e sales and ser#ice network now spans o#er to 8<<< customer touch points. These comprise a mi+ of authori-ed dealerships, ser#ice J spare parts outlets, and dealer-appointed outlets across the countr$.

Product portfolio
1. Karizma ZMR

KARIZMA ZMR

2. Karizma

.?

KARIZMA

3. Impulse

IMPULSE

4. Xtreme

XTREE

5. Hunk

.;

6. Ignitor

IGNITOR

7. Maestro

. !leasure

PLEASURE

". #uper #plen$or

SUPER-SPLENDOR

1<

1%. #plen$er !ro

11. #plen$er !lus

SPLENDOR-PLUS

12. #plen$er &'X(

SPLENDOR-NXG

13. !assion X!R)

PASSION-XPRO

11

14. !assion !ro

PASSION-PRO

15. H*&+elu,e

HF-DELUXE

16. H*&+a-n

HF-D

17. (lamour !rogramme$ *i

GLAMOUR PROG

1.

1 . ./0ie1er

HIE!ER

1". (lamour

Process Flo

C!"r#$

)rocess flow chart for are e+isting to meet the production planning.

11

C4APTER A 3 )N2ENTOR: MANAGEMENT AT 4ERO MOTOCORP LTD.

"ogistics 6!aterials !anagement is considered one of the #ital ser#ice functions that helps in bringing down the working capital re0uirement and hence, the cost of production through reduction of interest burden. a#ailable capital for alternate producti#e purposes. Also, it would help to make

Materia%+ Manage"ent C#c%e <

/roadl$, the In#entor$ !anagement %$stem comprises of !aterial )lanning )urchasing 9ormulating deli#er$ schedules (eceipts and inspection %torage J issues (e-allocation of a#ailable stocks among #arious stores6users Identification of 7bsolete and unusable in#entor$ Hisposal of used items 6 scrap

It is needless to sa$ that judicious )lanning, 7rgani-ing, scheduling and monitoring of #arious acti#ities is essential at e#er$ stage to ensure that in#entories are maintained at optimal le#el and a#oid stock out situations. In real time, the subject becomes comple+, as it has got inter-relationship with the production s$stem, which is d$namic due to both internal and e+ternal factors. Thus, integration of !aterials !anagement %$stem with the production s$stem and suppl$ chain management is essential to achie#e the desired results.

12

Functiona% !trategie+, O/0ecti e+ o( in entor# "anage"ent at 4ero Motocorp<

a2 *#ol#e and implement a scientific in#entor$ control s$stem to achie#e optimi-ation of in#entor$ le#els. 32 %tandardi-e and impro#e e0uipment design. /2 Breate and sustain computer culture. $2 /ring more common items under centrali-ed procurement s$stem to get better control. e2 )reser#ation of materials to a#oid damages6 deterioration during storage. 42 Impro#ement in purchase procedure for reduction in procurement leadtime. In#entor$ management at ero onda was di#ided into three broad areas $. P9RC4A!E CONTROL .. !TORAGE CONTROL 1. ACCO9NT)NG CONTROL

$. P9RC4A!E CONTROL 5 The Purcha+e proce*ure

$. Re-ui+ition to purcha+e
The indenters from #arious departments will raise re0uisition called the Materia% Purcha+e Re-ue+t for purchase. It should be insured that the re0uisition for purchase should be completed in all respects with regard to, *ach item of purchase shall ha#e a precise, complete and unambiguous identification. Indenting department is responsible for identification of items in its indents. Identification shall include the generic name of the material as

14

recogni-ed commerciall$ and ph$sical dimensions &weight, si-e, #olume, capacit$ and other technical specifications' and code number as rele#ant. (e0uired date of deli#er$ *stimated #alue and appro#ed budget head >hether the item is a stock item6non-stock item6capital item

The stores section will raise the re0uisition for purchase of materials, which ha#e been declared as stock item, after the 0uantit$ in stock has reached the Ireorder le#elD as determined for the respecti#e items. %uch re0uisition amongst other particulars should also indicate the Ima+imumD, DminimumD and Ire-orderD le#el, the date on which last suppl$ was recei#ed and the a#erage consumption per month since last purchase.

The re0uisition for purchase non-stock items will be in#ariabl$ routed through the stores section that will endorse on the re0uisition the a#ailabilit$6 non-a#ailabilit$. In case the item is a#ailable, the 0uantit$ thereof is indicated on the purchase re0uisition so that the 0uantit$ to be purchased can be adjusted b$ the head of the purchase dept. in consultation with the indenters. The finance J Account dept. would ensure that the purchase re0uisition must indicateA a' The budget pro#ision b' The amount utili-ed 6 committed up to the pre#ious re0uisition c' The estimated #alue of the present re0uisition &b$ departmental head', and d' The balance a#ailable under the budget head after booking the present re0uisition.

18

.. Huotation (ro" *i((erent en*or

7n receipt of the re0uisition from the #arious indenting departments, en0uiries shall be issued b$ the purchase dept. to find out different #endors for particular material. Guotation from different #endor is in#ited. 5ormall$, the lowest Guotation, which conforms, to the specifications will be accepted. owe#er, where the lowest bid e#en

though it conforms to the specifications is not accepted, full justification for accepting other than the lowest bid shall be recorded in writing and appro#al of the competent authorit$ will be obtained.

1. Con(ir"ation o( Purcha+e Or*er<

)urchase order is gi#en to the lowest 0uotation on agreed terms and condition.

Lea* Ti"e< The purchase time indicates the lead-time i.e. time taken to ph$sicall$ recei#e the material from the date of its indent. Burrent lead time of the compan$ is 14 da$s.

PROCE!! OF RECE)PT OF MATER)AL!

Coods are recei#ed /$ the securit$

personnel

*ntr$ is made in the Cate Inward (egister &ICID'

%tores informs GB about CI (egister manuall$ reconciled the receipt ofis goods and samples %tores *+ecuti#e prepares )h$sical #erification is conducted withare the C(5 b$and %tores to collected for testing theprepared C(5 against b$ contractual labour ensure %uper#ised that all goods recorded 1: the )7 created in %A) in b$ are %tores %A)

Dai%#

Month%# Proce++

%T7(AC* B75T(7"A
The procurement action of stock items is initiated b$ store. 5ormall$ working hours of store is general shift hours. owe#er, in case of shut down, emergenc$ ser#ice of stores is made a#ailable as re0uested b$ user department. OBJECT)2E OF !TORE! To render materials, ser#ices to the organi-ation b$ recei#ing, issuing the spare parts, preser#ing the spares in custod$, disposing the scrap6 surplus materials. The objecti#e is achie#ed through following function. %tores function is basicall$ a ser#ice function. The main functions of the stores areA 1' To recei#e all t$pes &%tock and 5on-%tock' materials, to arrange inspection of materials. .' To keep materials safe custod$, issue of materials to ser#ice and maintenance department. 1' To initiate action for procurement of stock items, to keep in custod$ and issue to ser#ice department. 2' Hisposal of 5on-mo#ing item, surplus item, and scraps item. 4' Implement stores related policies and functions. 8' Boordinating with other departments for stores related acti#ities. :' To maintain records6 files of all stores acti#ities, issue #ouchers, stores receipt #ouchers &%(O', stock adjustment #ouchers &%AO', material e+ception reports &!*(', claims6 dispatch ad#ice etc.

1?

D)2)!ON! OF !TORE<
%tore department is also di#ided into three sectionsA (*B*I)T %*BTI75 BF%T7HK %*BTI75 HI%)7%A" %*BTI75

(*B*I)T %*BTI75
Main Function+ o( receipt +ectionK
To arrange copies of purchase order6work order and amendments thereof for read$ reference. (ecei#ing of materials L checking and arranging for inspection. Hocumentation L %(O &%tore (eceipt Ooucher' andling o#er of accepted materials to custod$ section Accounting 6 segregation of rejected material. 9ollow up with handling contractor and transporter )rocessing bills for ser#ices a#ailed.

BF%T7HK %*BTI75 Main (unction o( +ectionK

1. Bodif$ing all the items with ;M1 digit code structure. .. (ecei#ing J posting of accepted materials against %(O and storing at proper location 1. )reser#ation of material during storage period. 2. I%tock OerificationD reconciliation of stock with management appro#al. 4. Issue of material to the ser#ice and maintenance department as and when re0uired.

1;

8. !aintenance of records and accounting for each transaction. :. Oerification of !aterial statement for the material issued against #arious Iwork ordersD ;. )reparation of !)(s for Istock controlledD items. 11. (e#iew and fi+ing of Istock le#elD for stock control items. 1.. ousekeeping of the entire co#ered area under stores

!TORE! FLOW D)MAGRAM

Re/ei1ing o4 materials 4rom Hero Hon$a 6t$. Return o4 re7e/te$ materials to Hero Hon$a 6t$.

Receipt !ection
Return o4 material t0roug0 I#R8 &Inspe/tion o4 material. &#R8 &.//epte$ material. M!R 4or sto/k item to pur/0ase

Bustod$ %ection

Issue o4 material to 9ser +ept.

Han$ing o1er surplus material 4or $isposal to +isposal se/. :0e preser1ation o4 material

Hisposal section

2<

PROCED9RE FOR RECE)2)NG T4E ACCEPTED MATER)AL )N C9!TOD: !ECT)ON

A' The materials are recei#ed in custod$ section through two sources mainl$. 9rom receipt section through %(O and@ 9rom user depDt through I%(O &!aterial once drawn from stores and not consumed can be returned to custod$ till it is further re0uired for consumption'. 1' If the material is recei#ed through %(O, i' %(O for receipt of accepted material will be checked for special remarks for storage condition &if an$' J taken into custod$. ii' The appropriate location for the material will be selected6arranged. iii' The material will be shifted to the selected place of its storage. i#' The material will be stock charged i.e. taken into account b$ posting in computer. .' If material is recei#ed through I%(O, i' %IO reference no. J date &when this material was drawn'. ii' (easons of return. iii' = Oalue of material indicated b$ user or not. i#' If it is repaired J returned to stores. #' Bondition of material. /' Guantit$ mentioned in I%(O is checked with 0uantit$ recei#ed b$ stores.

PROCED9RE !TAT9!

FOR

RECONC)L)AT)ON

OF

)N2ENTOR:

21

It is a s$stem for identif$ing the unwanted in#entor$ and the de#iation in ph$sical stocks for reconciliation of the stock and maintaining the accurac$ in management reporting s$stem for in#entor$ status. All items in stocks are to be ph$sicall$ #erified once in a $ear so that necessar$ adjustments can be made in stocks after obtaining necessar$ appro#als from competent authorit$.

)(7B*HF(*

*#er$ item will be #erified under perpetual t$pe of in#entor$ #erification s$stem once in a $ear. The finance department will prepare the group wise list of the items. 7n hand 0uantit$ against the indi#idual item will be noted with their respecti#e location. The ph$sical stock is then #erified with the representati#e of stores depDt. The de#iation will be checked, scrutini-ed and sorted out. The final list of unsettled item with de#iation in 0uantit$ will be prepared. !anagement appro#al for write-off 6 write on the stock is obtained. %tock is adjusted through a #oucher- %AO

)(7B*HF(* 97( !AT*(IA" I%%F*

!aterials are issued within the specified time period i.e. ;.<< A! to 1..<< noon. In case of emergenc$, materials can be issued depending upon the merit of the case.

!aterials are issued against %IO format signed b$ authori-ed persons. %IO will be checked. Indication for t$pe of transaction will be checked on %IO Guantit$ on hand and location of the item will be noted on the %IO for respecti#e item. Guantit$ to be issued is decided based on t$pe of material re0uired.

2.

If re0uired materials is stock item, then 0uantit$ issued is depending on stock a#ailable. If re0uired material is non-stock item, it can be issued full &i.e. e0ual to demanded 0uantit$'. If re0uired material is material is from reser#ed material categor$, then it can be issued to ma+imum 0uantit$ kept reser#ed for that particular depDt.

!aterial will be issued for the decided 0uantit$-obtaining signature J name of the drawer for its ph$sical receipt. Guantit$ issued for the item will be posted to update the stock position.

D)!PO!AL !ECT)ON
The #arious function of disposal section@ To recei#e surplus material, scrap, unser#iceable stores. It is ensured that scrap materials are properl$ located 6 stored for fetching good price. Boordinating acti#ities of declaring items as surplus 6 obsolete, fi+ing of reser#e price for their disposal and obtaining management appro#al for their final disposal.

Accounting Contro%
In#entories are the assets of a compan$ and such as their #aluation get reflected in the balance sheet and profit and loss account. These can be #alued at actual, at the last price paid, on the basis of an a#erage price, current market price, and so on. A compan$ ma$ adopt a particular method of in#entor$ #aluation, but it is obligator$ to follow it for a minimum period of three $ears. An$ changeo#er to a new method re0uires the appro#al of the board.

21

In#entories measured b$ mone$ #alue usuall$ constitute the major element in the working capital of manufacturing companies. 7nl$ proper stores accounting procedure can successfull$ achie#e control of in#entor$. A good s$stem of stores accounting is found to be necessar$ for certain other purposes likeA a2 )reparation of accurate cost accounts 32 *#aluation of purchase performance /2 >orking out important management ratio like sales to in#entor$, consumption to in#entor$, purchase to in#entor$, in#entor$ turno#er etc. $2 )reparation of materials budget >hen a material is purchased, recei#ed, inspected, and placed in the stores, an entr$ is made about the purchase through a Coods (eceipt Ooucher. The entr$ for the 0uantit$ recei#ed is simple, but the entr$ for the #alue of a purchase is a #e+ed problem because the #alue is the sum of a number of items likeA a2 In#oice price 32 %ales ta+6 octroi /2 *+cise dut$6 custom dut$ $2 Insurance e2 9reight, carriage, handling charges etc. The goods receipt #oucher is priced from the appropriate in#oice and the material account is debited in the stores ledger.

2a%uation o( the Materia% )++ue

The method of #aluation followed in ero !otocorp "td. is the weighted a#erage pricing mechanism. In this method the total 0uantities and total costs are considered, unlike simple a#erage method where onl$ total costs are considered. This pricing mechanism is 0uite ad#antageous as the price is fi+ed for a particular period sa$ for one month and the s$stem takes care of price fluctuations.

Preparation o( Bin Car*+

22

/in card is a 0uantitati#e stock ledger. It shows the on-line stock position. >hate#er an$ basic document relating to mo#ement of stores &%IO, %(O, %AO etc' is punched into s$stem, automatic-posting goes into /in-Bard .

Pricing o( Receipt+ C!R2D

The custod$ section sends %(O to finance for purpose of pricing. 9inance prices the %(O on the basis of terms and conditions of the purchase order and bill of #endor. %(O for which bills are not recei#ed from the #endor are #alued pro#isionall$ at the month end. )reparing a %( amendment #oucher does adjustments for #ariation in #alue.

Pricing o( )++ue+ C!)2D

Issues are #alued on monthl$ weighted a#erage basis. The issue of material or spare will be #alued at monthl$ weighted a#erage method.

Preparation o( Price !tore Le*ger CP!LD

The )%" is an item wise stores ledger. It shows both 0uantit$ and #alue.

CLA!!)F)CAT)ON OF )N2ENTOR)E!< ;

The materials are classified into . the$ are

$. ABC ana%#+i+ .. 8:L ana%#+i+ $D ABC ANAL:!)!<;

9or IAD class items 4ero "otocorp use direct online CDOLD. A class parts are purchased dail$ The$ purchase IAD items from local #endors. %ome of the A class items includes Bhasis, Aluminum, 9erro, liners, back spares, etc. 24

/ class parts are purchased up to 2 da$s. / class items are spring, stickers, rubber components, plastics etc B class parts are purchased up to : da$s or 1< da$s. B class items are wires, nut bolts etc.

ABC c%a++i(ication (or the #ear .G$.;$1 i+ ta/u%ate* /e%o&< ABC C%a++ Criteria No. o( "ateria% Cu"u%ati e con+u"ption a%ue C in A 7GE con+u"ption B a%ue .GE con+u"ption C a%ue $GE con+u"ption a%ue $G.16 $G7.56 o( IGFG $G.76 o( I17 .$.53 o( .$I %acD 75..5

A class item ha#ing criteria :<= consumption #alue has .1; items and #alue of :4..4 lacs. These items are re0uired to be ordered fre0uentl$ to reduce capital locked up in in#entor$. The$ should also ha#e low safet$ stock and strict control. These items should be handled b$ senior staff. / class item ha#ing criteria .<= consumption #alue has ;1: items and #alue of .1.42 lacs. These items re0uire onl$ periodic follow up and ha#e moderate safet$ stock. The$ need moderate control.

28

B class item ha#ing criteria 1<= consumption #alue has ;<?< items and #alue of 1<.:8 lacs. These items re0uire e+ceptional follow up and high safet$ stock and re0uire lose control.

TOOL!

AND

TEC4)N)H9E!

OF

)N2ENTOR:

MANAGEMENTM W4)C4 COMPAN: )! ADOPT)NG< ;

PA5 /A5 EIT !I"P (F5 B75B*)T T>7 /I5 %K%T*!

$D KANBAN<; A kanban is a card containing all the information re0uired to be done on product at each stage long its path to completion and which parts are needed at subse0uent process. These cards are used to control work-in-process &>.I.)', production, and in#entor$ flow. A PA5/A5 s$stem allows a compan$ to use just-intime &E.I.T' production and ordering s$stems which allow them to minimi-e their in#entories while still satisf$ing customer demands. In ero !otocorp, the$ used Panban s$stem for IcD class items. .D J9!T )N T)ME )N2ENTOR: CONTROL<; the just-in-time in#entor$ control s$stem, originall$ de#eloped b$ taichi okno of happen, simpl$ implies that the firm should maintain a minimum le#el of in#entor$ and rel$ on suppliers to pro#ide parts and components just in time to meet its assembl$ re0uirements. This ma$ be contrasted with the traditional in#entor$ 2:

management s$stem, which calls for maintaining a health$ le#el of safet$ stock to pro#ide a reasonable protection against uncertainties of consumption and suppl$ the traditional s$stem ma$ be referred to as a just-in-case s$stem. The just in time in#entor$ s$stem, while conceptuall$ #er$ appealing, is difficult to implement because it in#ol#es a significant change in the total production and management s$stem. It re0uires inter alias &i' &ii' &iii' . A strong and dependable relationship with suppliers who are geographicall$ not #er$ remote from the manufacturing facilit$. A reliable transportation s$stem and As eas$ ph$sical access in the form of enough doors and con#enientl$ located docks and storage areas to do#etail incoming supplies.

under the just in time in#entor$ s$stem a concentrated effort is made to lower the ordering cost &9 in the abo#e e0uation' and also the safet$ stock b$ forging stronger long-term relationship with the supplier. As a result both the components on the right hand side of the abo#e e0uation declaim and this means that the a#erage in#entor$ le#el as lower. 1D M)LK R9N CONCEPT<; The concept of the milk run is da$ to da$ purchasing. ere the bu$er will

purchase the material according to the production, which is for the ne+t one da$. The bu$er will first know the safet$ and control stock and then he tells to the supplier the estimated trigger #alue. In milk run concept onl$ 0ualit$-certified stock will be deli#ered. The purchaser should estimate the lead-time and it is compulsor$ so as to ha#e the control o#er lead-time. It is direct on-line s$stem. There will be no inspection so as to sa#e time. 2?

A* antage+< ;
*conomical transportable lot&minimum transportation cost per piece' 5o in#entor$ carr$ing cost at plant and at warehouse. It is direct online s$stem Gualit$ certified stock will be deli#ered and so no inspection is re0uired.

E+ti"ation o( *i((erent co+t+ o( ho%*ing )n entor#< ;

In the calculation of the ordering cost and also for other calculation purpose or anal$-ing purpose, II ha#e considered A"" B"A%%*% IT*!% in#entor$ management as e+plained earlier. A5H T7 A"" !7H*"%D, To calculate the #arious costs which are in#ol#ed in the anal$sis of

TRAN!PORTAT)ON CO!T<;
These are the cost, which are incurred when the spare parts6materials are procured from different places in ero !otocorp ltd, the spare parts are procured from the places like Helhi, noida, !umbai, pune, nashik and banglore etc. and the cost is incurred b$ procuring the spare parts form #endorDs place to the compan$ i.e. manufacturing unit. There are different slab for the transportation cost procured from different places. Two main important factors are considered in calculating transportation cost. Histance between the compan$ and #endors place. Hepending upon the weight of the spare part to be transported. Transportation cost is taken as ma+imum ..5E o( the basic price of the spare parts on an a#erage.

CARR:)NG CO!T< ;

2;

These are the costs for holding the in#entories. These costs will be depending up on their classes. These costs will not be incurred if in#entories are not carried. Fsuall$ 2 da$s in#entor$ are kept in stock for an$ IAD categor$ items. storage cost, maintenance cost etc. ence the carr$ing cost includes #arious costs and those are capital locked in the in#entories,

E!T)MAT)ON OF !TOCK LE2EL! FOR !uper !p%en*or<

NOTE<; 4ERE )AM CON!)DER)NG ONL: !9PER !PLENDOR
There are different models used in the calculations of the stock le#els. As mentioned earlier the formula for the calculations of the stock le#els, economic order 0uantit$, number of purchase orders placed in the month for different spare parts.

Reor*ering -uantit# ; .GGGunit+. Reor*ering perio* Wee'%# u+age< ; Maxi"u" A Nor"a% A Mini"u" A 6GG unit+. 3FG unit+. 1IG unit+. A . to 1 &ee'+.

RE;ORDER)NG H9ANT)T:<
The 0uantit$ to order is called re-order 0uantit$. There are man$ factors to be considered to place an order for certain le#el at certain time. It depends upon the present demand, future, and the coordination between the bu$er and #endor etc. The re-ordering 0uantit$, which is generall$ followed, is that of ordering the bin 0uantit$. In ero !otocorp ltd., a s$stem is followed in ordering and that is like .;/in +#+te". After the consumption of $;/in or*er is placed with the #endor for the procurement of spares.

4<

ence reordering 0uantit$ is taken as the $;/in -uantit#. This process of ordering is not e+act as per the schedule of the production is concerned because it keeps on changing Reor*ering -uantit# i+ .GGG unit+ Reor*ering perio* i+ .;1&ee'+. Reor*ering %e e% = "axi"u" con+u"ption 8 "axi"u" re;or*er perio* 6GG x 1 = $FGG unit+.

M)N)M9M !TOCK LE2EL< ;

NOTE< ; 9or the calculated of the champion #ehicles as 2?<. ence the weekl$
consumption of the parts id constants Ex< - consider %F)*( %)"*5H*( for calculation purpose. 5ormal dail$ consumption N 2?<units. 5ormal reorder period N (eorder le#el N perio*D $FGG;C3FG x ..5D = 6GG unit+. The engine stocks should not go below 6GG unit+. 7therwise there will be shortage in stocks of engine and the compan$ can come across losses due to the storage. ..4weeks. 1?<< units.

Mini"u" +toc' %e e% reor*er+ %e e%; Cnor"a% con+u"ption x nor"a% reor*er

MA8)M9M !TOCK LE2EL<;

It is the le#el at which it is risk of storing the in#entor$ and thus it is loss to the compan$, if it e+ceeds this le#el. It is calculated asA (e-order le#elN1?<< units. (e-order 0uantit$ N.<<< units. !inimum consumptionN1;< units. !inimum re-order period N . weeks.

41

Maxi"u" +toc' %e e% = re;or*er %e e% > re;or*er -uantit# AC"ini"u" con+u"ption 8 "ini"u" re;or*er perio*D. N$FGG > .GGG A C1IG x .D =1G.G unit+. 9rom this it is clear that the stock le#el of the engine should not e+ceed abo#e 1G.G unit+. It will be economical to maintain stock below 1G.G unit+. Abo#e this le#el the compan$ incurs relating sort the maintenance of stock, loss due to storage, storage cost, insurance cost, etc.

A2ERAGE !TOCK LE2EL< ;

It is the compan$ should maintain in order to reduce the #arious cost of in#entor$ management. At this le#el it is #er$ economical for the compan$ to maintain the stocks at this le#el It is calculated asA !inimum stock le#el N 8<<units (e-ordering 0uantit$ N .<<< units. A erage +toc' %e e% = "ini"u" +toc' %e e% > N o( re;or*ering -uantit#. N6GG > C$,. x .GGGD =$6GG unit+.

)N2ENTOR: RAT)O!<

$.

)n entor# turno er ratio

In#entor$ turno#er ratios are calculated to indicate whether in#entories ha#e been used efficientl$ or not.

4.

Kear .<11 .<1. .<11

%ales 4,1<,8:,8.,<<< 4,11,18,;.,<<< 4,;.,1.,<2,<<<

A#erage In#entor$ 22,12,4<,<<< 48,1;,<<,<<< 81,12,22,<<<

In#entor$ turno#er ratio 11.;: ;.2? ;.8;

I%&e%#or'T (r%o&erR"#)o
14 12 10 8 6 4 2 0 2011 2012 2013

)nterpretation
This ratio shows how rapidl$ the in#entor$ is turning into recei#able through sales. The in#entor$ turno#er ratio is 11.;: in .<11. It is decreased up to ;.2? in .<1. and it is ;.8; in .<11. The abo#e anal$sis shows that the in#entor$ management is #er$ efficient throughout the period of stud$. Bompared to .<11, IT( shows decreasing trend. /ut still it didnDt decrease to great e+tent. tight in#entor$ control s$stem. ence we can sa$ compan$Ds ha#ing

.. Kear

)n entor# ho%*ing perio* Ha$s In#entor$ turno#er ratio In#entor$ turno#er ratio & in da$s '

41

.<11 .<1. .<11

184 184 184

11.;: ;.2? ;.8;

1< 1; 1?

I%&e%#or'H ol*)%+Per)o*
45 40 35 30 25 20 15 10 5 0 2011 2012 2013

1. Kear .<11 .<1. .<11

Ra& "ateria% turno er ratio Annual Bonsumption of raw material 1,1<,1.,1;,<<< 1,48,1;,11,<<< 1,?;,4.,11,<<< A#erage raw material in#entor$ .4,<:,.<,<<< 11,;1,14,<<< 1.,1.,:2,<<< (aw material turno#er ratio 11.1: 1<.4< 1..1.

42

R" M"#er)"l I%&e%#or'T (r%o&er R"#)o

14 12 10 8 6 4 2 0 2011 2012 2013

3. Kear .<11 .<1. .<11 Bost of goods sold 4,1<,8:,8.,<<< 4,11,18,;.,<<< 4,;.,1.,<2,<<<

Fini+he* goo*+ in entor# turno er ratio A#erage In#entor$ of finished goods 8, ;;, 1.,<<< 11, 2;, 28,<<< 11, ::, 42,<<<.4 9inished goods turno#er ratio :4.?? 28..1 2..;;

44

F )%)s!e*Goo*sI%&e%#or' T (r%o&er R"#)o

80 70 60 50 40 30 20 10 0 2011 2012 2013

B A)T*( L 4 9I5HI5C%

9or all the models assembled in

ero !otocorp "td. the reordering

0uantit$ is followed b$ two bin s$stem i.e. after the consumption of one bin onl$ the second bin order is placed.

48

 The minimum stock le#el that

ero !otocorp "td. will store for

champion model is 8<< units b$ calculation.

There is a risk and loss to the compan$ if it e+ceeds a ma+imum

stock more than 1<.<units for champion model.

9rom the stud$ i found that for champion auto the a#erage stock
le#el is 18<< units on the basis of minimum stock and reordering 0uantit$.

9rom the past two $ears there is a tremendous increase of

production and dispatches which in turn ga#e rise to growth of all models of ero !otocorp "td.

!anagement concentrates much while taking decisions in suppl$

chain as there is a problem in transportation due to location disad#antage.

EIT s$stem is being implemented in

period of time.

ero !otocorp "td.

as

consumption of materials for all models are procured for a definite

>hile purchasing materials a definite codification is gi#en to each

and e#er$ spare parts of #ehicle for all models and it is maintained with that particular code onl$.

B A)T*( - 8

!9GGE!T)ON!

4:

 The process two bin s$stem of reordering 0uantit$ must be taken e+actl$ as per the schedule of production as there ma$ be changes due to increase in demand and unforeseen conditions. The minimum and ma+imum stock le#el should be accordingl$ to the calculated units, otherwise there will be a risk of shortage of in#entor$ and thus it is a loss to the compan$. The compan$ should maintain the a#erage stock le#el accordingl$ in order to reduce the #arious costs of in#entor$ management. In#estment of finance will be less if the stock is brought da$-to-da$. %o the full in#entor$ has to be made direct online s$stem on basis of milk run concept. To keep materials cost under control so that the$ contribute in reducing cost of production and o#erall costs. )roper codification leads to ma+imum cost control. 9inall$ I suggest that Eapanese technolog$ . ero !otocorp "td. should continue in using the high

B A)T*( -:

B)B)L)OGRAP4:

4?

 F)NANC)AL MANAGEMENT ; PRASANNA CHANDRA CO!T ACCO9NT)NG ; S. N. MAHESHWARI CO!T ACCO9NT)NG ; VARSHINI & SAXENA

)N2ENTOR: MANAGEMENT - Bhagirath Singh.

We/+ite+<
www.heromotocorp.com

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