CONTENTS

PAGE NO.S

CHAPTERI

Introduction to the topic Conceptual background

CHAPTERII

Need or significance of the Objectives of the study Research design

study

CHAPTERIII
Industrial profile Organization profile

CHAPTERIV

Data

analysis

and

interpretation

CHAPTERV
Findings

Suggestions Bibliography

CHAPTER-I INTRODUCTION

INTRODUCTION 2

Material is a very important factor of a production. It includes physical commodities used to manufacture the final product. It is the inventorial and does not get waste and exhaust with the passage of time as labor is wasted with the passage of time whether in used or not. The other feature of material is that, is firm, where as other elements of cost like labor and other services cant be easily varied once they are established. From this it can be concluded that material is most flexible on controllable input. It is the first and most important element of cost. Materials account for nearly 60% of the cost of production which is clear from analysis of financial statements of a large number of private and public sector organizations. According to the Indian association of materials management of 64 paisa in a rupee are spent on materials by Indian industries, 16 paisa on and the rest of 1 rupee of cost is spent on over heads. Importance of material control lies in the fact that any saving made in the cost of materials will go a long way in reducing the cost of production and improving the profitability of the concern. Studies by experts in this field have highlighted the facts that if an organization can affect 5% saving in material cost, it would be as good as increasing the production or sales by about 36%. Proper control of material is necessary from the time orders for purchasers of materials are placed with suppliers until they have been consumed the object of material control is to attack material cost on fronts, so that the cost of material may be reduced. In other words, efforts are to be made to reduce the cost of materials when it is purchase, stored and used Before coming to the discussion of material control, we may clear that purchase of materials will include both direct and indirect materials. Direct materials and indirect materials are both treated as stores items, where as stock of finished goods id not treated as a stores item, direct and indirect materials purchased for stock purpose to be issued to different jobs, works orders of departments as and when required. On the other hand, finished goods are treated as stock. We may also refer to the commonly used term INVENTORY which includes the stock not only of raw materials but also stores and spares, work-in-progress and finished goods. The stock materials are only a part of the inventory held by a manufacturing unit. Every enterprise needs inventory for smooth running of its activities. It serves As a link between production and distribution process. There is generally a time lag

between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a question for future price fluctuations. The investment in inventories constitutes the most significant part of current assets/ Working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.

MEANING AND NATURE OF INVENTORY

In accounting language, inventory may mean the stock of finished goods only. In manufacturing concern, it may include raw materials, work-in-process and stores etc. Inventory includes the following things.

a)

Raw Material:

Raw material form a major input into the organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factories like the availability of raw materials and government regulations etc, to affect the stock of raw materials.

b)

Work in Progress:

The work in progress is that stage of stocks which are in between raw materials and finished good. The quantum of work in progress depends up on the time taken in the manufacturing process. Together the time taken in manufacturing, the more will be the amount of work in progress.

c)

Consumables:

These are the materials which are needed to smoother the process of production. These materials do not directly enter production but they act as catalysts. Consumables may be classified according to their consumption and critically.Generally, consumable stores do not create any supply problem and firm a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The

fuel oil may form a substantial part of cost.

d)

Finished goods:

These are the goods which are ready for he consumers. The stock of finished goods provides a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to customers.

e)

Spares:

The stocking policies of spares differ from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc are not discarded after use, rather they are kept in ready position for further use. All decisions about spare are base o the financial cost of inventory on such spares and the costs that may arise due to their non-availability.

BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of a firm's funds and the costs of storage and handling, every business enterprise has to be maintaining certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives order. It will mean loss of time and delays in execution of orders which sometimes may causes loss of customers and business. A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc. There are three main purposes of holding inventories. The transaction motive: This facilitates continuous production and timely execution of sales orders. The precautionary motive: This necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials The speculative motive: This induces to keep inventories for taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts

RISK AND COSTS OF HOLDING INVENTORIES 5

The holding of inventories involves blocking of a firm's funds and concurrence of capital and other costs. The various costs and risk involved in holding inventories are:

i. Capital Costs: Maintaining of inventories results in blocking of the firms financial

resources. The firm has therefore to arrange for additional funds to meet the cost of inventories. The fund may be arranged from own resources of firm outsiders. But in both the case, the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the later case; the firm has to pay interest to the outsiders.

ii.

Storage and handling costs: Holding of inventories also involves cost on

storage as well as handling of materials. The storage of costs includes the rental of the go down, insurance charges etc.

iii.

Risk of price decline: There is always a risk of reduction in the prices of

inventories by the suppliers in holding inventories. This may be due to increase market suppliers, competition or general depression in the market.

iv. Risk of obsolescence: The inventories may become obsolete due to improved
technology, change in requirements, change in customer tastes etc.

v.

Risk determination in quality: The quality of materials may also deteriorate

while the inventories are kept.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the actual problem of liquidity but also increase profits and causes substantial reduction in the working capital of the concern.

1. Determination of stock levels:

Carrying of too much and too little of inventory is determined to the firm. If the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up of capital.An efficient inventory management requires should maintain an optimum level of

inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss or shortage of production.

a)Minimum stock level:

It represents the quantity below its stock of item should not be allowed to fall. Lead-time: A purchase firm requires some time to process the order time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing it is known as lead time. Rate of consumption: It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans.

Nature of material: The nature of material also affects the minimum level if a
material `is required for such material. Minimum stock level can be calculated with the help of following formula. Minimum stock level = Re ordering level (Normal consumption x normal reorder period.)

b) Re ordering level:
When the quantity of materials reaches at a certain figures then fresh order is sent to get material again. The order is sent before the materials reach minimum stock level. Re ordering level is fixed between minimum level and maximum level. Re-ordering level = Maximum consumption x Maximum Re- order period.

c) Maximum Level:
It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds minimum level limit then it will be overstocking. Overstocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more chances of losses from obsolescence. Maximum Stock Level = Re-ordering Level + Re-order Quantity (Minimum consumption x Minimum Re-order period)

d) Danger Stock Level:

It is fixed below minimum stock level. The danger stock level indicates emergence of stock position and urgency of obtaining, fresh supply at any cost. Danger stock level = Average Rate of consumption x emergency delivery time

e) Average stock level:

This stock level indicates the average stock held by the concern. Average stock level = Minimum stock level + x Re-order quantity.

2. Determination of safety stocks:

Safety stock is a buffered to meet some unanticipated increase in usage. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out. In order to protect against the stock out arising out of usage fluctuation, firms usually maintain some margin of safety stock. Two costs are involved in the determination of this stock that is opportunity cost of stock outs and the carrying costs. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. On the other hand, the larger quantity of safety stock involves carrying costs.

ECONOMIC ORDER QUANTITY: The quantity of material to be ordered at one time knows an economic ordering quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and

carrying costs. Total cost off material = Acquisition cost + carrying costs + ordering cost.

Carrying cost:
It is the cost of holding the materials in the store.

Ordering cost:
It is the cost of placing order for the purchase of materials. EOQ can be calculated with the help of the following formula

EOQ=2RCO/CH
Where R CO CH = Annual Consumption = Ordering Cost = Carrying Cost

4. A-B-C Analysis: (Always better control analysis)

Under ABC analysis, the materials are dividing into 3 categories viz. A, B and C Almost 10%of the items contribute to 70% of value of consumption and this category is called 'A' category. About 20% of the items contribute about 20% of value of consumption and this is known as category 'B' materials. Category 'C' covers about 70% of items of materials which contribute only 10% of value of consumption.

5. JIT Analysis (Just in time):

The goal of just in time analysis is manufacturing is not new. The basic desired for continued reduction material resources requirements is quiet common. The means by which goal of JIT is now being accomplished is considered to be new. The primary goal of JIT is to achieve zero inventories with in an organization as well as through out entire supply chain. JIT the key theme is to work with out buffer stock/with minimal buffer stock.

6. Inventory Turn over ratio:

Inventory turn over ratios is calculated to indicate whether inventories have been used efficiently or not. The inventory turnover ratio also knows as stock velocity is normally

calculated as sales/ average inventory of cost of goods sold/average inventory. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. Symbolically

Cost of goods sold Inventory Turnover Ratio = ------------------------Average inventory at cost ( Or ) Net sales = -----------------------Average inventory

Days in a year Inventory conversion period = ---------------------------Inventory Turnover Ratio

7. Classification and codification of Inventories:

The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names is useful for inventory management not only for large concerns but also for small concerns. Lack of proper classification may also lead to reduction in production. Generally, materials are classified accordingly to their nature such as construction materials, consumable stocks, spares, lubricants etc, after classification the materials are given code numbers. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned two digits and then two or three digits are assigned to the categories of items divided into 15 groups. Two numbers will be category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor.

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8 Valuation of inventories- Methods of valuation:

FIFO method LIFO method Base Stock method Weighted average price method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management, the more proximate criteria for judging the inventory system are

Comprehensibility Adaptability Timeliness

Areas of improvement: Inventory management in India can be improved in various ways. Improvements could be affected through. Effective Computerization: Computers should be used merely for accounting purposes but also for improving decision making. Review of Classification: ABC & FSN classification must be periodically reviewed. Improved Co-ordination: Better co-ordination among purchase, production, marketing and finance department will help in achieving greater efficiency in inventory management. Development of Long Term Relationships: Procedures for disposing obsolete/surplus inventories must be simplified. Adoption of Challenging Norms:

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Companies should set benchmarks with global competitors and use ideas like JIT to improve inventory management.

Valuation of inventories- methods of determination

Although the prime consideration in the valuation of inventories is cost, there are a number of generally accepted methods of determining the cost of inventories at the close of an accounting period. The most commonly used methods are First-in-first-out (FIFO) average, and Last-in-first-out (LIFO). The selection of the method for determining cost of inventory valuation is important for it has a direct bearing on the cost of goods sold and consequently on profit. When a method is selected, it must be used consistently and cannot be changed from year to year in order to secure the most favorable profit for each year. 1. The FIFO METHOD (FIRST-IN-FIRST-OUT METHOD): Under this method it is assumed that the materials or goods first received are the first to be issued or sold. Thus, according to this method the inventory on a particular date is presumed to be composed of the items, which were acquired most recently. Advantages: The FIFO method has the following advantages It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchases.

It is based on cost ad; therefore, no unrealized profit enters into the financial The method is realistic since it takes into Account the normal procedure of utilizing or selling those materials or goods,

accounts of the company.

which have been longest in stock.

Disadvantages: The method suffers from the following disadvantages.

It involves complicated calculations and hence increases the possibility

of

clerical errors. Comparison between different jobs using the exhausted the supply of same type

of material becomes some times difficult. A job commenced a few minutes after another job may have to bear an entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot. The FIFO method of valuation of inventories is particularly suitable in the following

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circumstances:

The materials or goods are of a perishable nature. The frequency of purchases is not large. There is only moderate fluctuation in the prices of materials or goods purchased. Materials are usually identifiable as belonging to a particular purchase lot.

2. THE LIFO METHOD (LAST-IN-FIRST-OUT) This method is based on the assumption that last time of material or goods purchased are the first to be issued or sold. Thus, according to this method inventory consists of items purchased at the earliest cost.

Advantages: This method has the following advantage.

It takes into account the current market conditions while valuing materials issued

to different jobs or calculating the cost of goods sold. The method is based on cost and therefore no unrealized profit or loss is made on

account of use of this method. type. 3. BASE STOCK METHOD: This method is based on the contention that each enterprise maintains at all time a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is deemed to have been creating out of the first lost purchased; therefore it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base sock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished good other than base stock. The base stock method has the advantage of charging out materials/goods at actual cost. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock. 4. WEIGHTED AVERAGE PRICE METHOD: The method is most suitable for materials which are of a bulky and non-perishable

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This method is based on the presumption that once the materials are put into a common bin, they lose identity. Hence, the inventory consists of no specific batch of goods. The inventory is thus priced on the basis of average prices paid for the good, weighted according to the quantity purchased at each price. Weighted average price method is very popular on account of its being based on the total quantity and value of materials purchased besides reducing number of calculations. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it very now and then as is the case with FIFO, LIFO methods. However, in case of this method different prices of materials are charged from production particularly when the frequency of purchases and issues/sales is quite large and the concern is following perpetual inventory system. 5. INVENTORIES VALUED AT STANDARD COST: A very useful method of valuing inventories is at standard cost. With a standard cost system there is no need for spending a great deal of time and money tracing unit cost through perpetual inventory record.

ACQUIRING RAW MATERIALS FROM THE STORE ROOM

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Recognized need for materials in production

Stores requisition Materials are sent to work place

Notifies storeroom Clerk need. of

Requisition is recorded in 1. Requisition summary used to record general ledger Entry transferring R.M's to WIP.

2. Perpetual inventory records. 3. Job cost sheets used when manufacturing is of a job Shop variety and costs must be kept by individual jobs. 4. Departmental cost records used to accumulate materials Costs by responsibility centers and to determine process. Costs for individual production

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RECORDING THE STORES REQUISITION THE GENERAL LEDGER:

The stores requisition is recorded in the general ledger and in various subsidiary ledgers. Among the usual subsidiary ledgers are the perpetual inventory cards, departmental cost records, and job cost sheets. INTERNAL INDENT Document No.: ST/F/1506 Revision No. : 02,Dated 01-05-2000 Page No. Section:
S.No.

: 1 of 1 S.No.
Quantity Purpose

Unit:
Computer Code No.

Date:
Description of the Material

Indenter Signature

Approved

Received

In the general ledger, stores requisition are recorded by a transfer from raw materials inventory (a credit) to work in process (a debit)Each stores

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requisition is not the subject of a general ledger entry. The stores requisition for a month are totaled, and this total is the subject of the above general ledger entry. Ordinarily each stores requisition is recorded in a requisition summary, which is totaled each month to determine the dollar amount of the general ledger entry. A requisition summary shown above provides departmental distinctions as well as distinction between direct and indirect materials.When the general ledger contains only one work in process account and one factory overhead account the monthly entry from the requisition summary would be: Dr. Work in process (for direct materials) Dr. Factory overhead (for indirect materials) Cr. Raw materials inventory. When the general ledger contains departmental account the monthly entry from the requisition summary would be: Dr. Work in process I Dr. Factory overhead - I Dr. Work in process II Dr. Factory Overhead II Cr. Raw materials inventory As shown above, there is need only for physical quantities since the inventory value is the physical quantity multiplied by the standard cost. With the cost and value columns disposed off, a perpetual inventory card can include additional data such as quantities on order, quantities reserved, and quantities available. These additional data are very useful for inventory and production control purposes. On the basis of a few calculations concerning actual units cost, inventories at standard cost could easily be converted into inventories on a FIFO, a LIFO or an average cost basis.

Inventory of Obsolescence:
Obsolescent inventories cannot be used or disposed off at values carried on the books. Frequent reviews should be made of all inventories and when obsolescence is

17

indicated a request for revaluation should be prepared for approval by management. The difference between original and obsolete value should be recorded by a charge to an operating account. Inventory obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full inventory of the material. If it is anticipated that the material can be sold at reduced value or used in areas where it will be worthless than its original value, the entry would be only for the amount of write down. Some companies carry a salvage inventory and transfer to its materials which may be sold or used at reduced values.

CHAPTERII RESEARCH METHODOLOGY

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NEED OF THE STUDY:

For the purpose of the study, Kusalava International Ltd. is selected, as being it is a monopoly. Sponge iron manufacturing unit in the country at the time when it was established in 1980 as a public sector unit, specially to meet raw materials requirements of mini steel plants. It seems that one of the important problems faced by public enterprises id ineffective control measures especially out dated and unused inventory control measures. Therefore, it is felt quite appropriate to make a micro study on inventory control methods and policies of the Kusalava International Ltd. So as to find out the responsible factors that caused for high inventory cost.

SCOPE AND SIGNIFICANCE OF THE STUDY:

A study on Inventory management was carried out at Kusalava International Limited for the months of May to June. The study was done for the raw materials and cylinder liners for the plant situated at Adavinekkalam. The study was conducted in consultation with plant and head office executives. Inventory Management is essential for the viability and long run survivalist of business as it is most important component of Current Assets. Being an outside research the study will definitely make an impression in term of much useful to the production department and top level management to review proceedings of inventory management department. Thereby facilitate the control measures to be taken if any deviations found in due course. As an academician the study will enhance an understanding on the practical aspects of business and inventory management in particular. Even though the study scope is limited, the findings will help the managers to examine day to day as well the

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periodical proceedings.

OBJECTIVES OF THE STUDY:

To understand the importance of Auto component Industry in India. To study about the tradeoffs between costs and benefits associated with the level

of inventory. To study the common techniques for managing inventory-ABC system, the basic

economic order quantity model, the reorder point and the safety stock. To identify the problems if any, and to provide appropriate suggestions for the

improvement of the Inventory management

DATA COLLECTION:
Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection is done through two principle sources viz. Primary data Secondary data

1. Primary Data:
It is the information collected directly without any reference. In this study it was mainly through interviews with concerned officers and staff, either individually or collectively. Some of the information had been verified of supplemented conducting personal with observation. The data includes: Interviews with Kusalava International Ltd. employees. Organization chart has been drawn through observation.

2. Secondary data: The secondary data was collected from already published source such as Pamphlets, annual reports, returns and international records.

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The data includes: Methodology under study has been collected from the annual reports of Kusalava International Ltd., in house magazines, Publications, books, Journals on Management and Websites. PERIOD OF THE STUDY: To analyse the inventory management here we have taken the data from the companies annual reports during the period 2006-2010.

LIMITATIONS OF THE STUDY:

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

basis of secondary data only. The time for data collection is only 2 months. The availability of data pertaining to 5 years is one of the constraints. As there is more dependency on secondary data realistic conclusion may not be

possible to be made.

The study was conducted within the selected unit of Kusalava International

Limited, Adavinekkalam.

PLAN OF THE STUDY: First chapter deals with introduction regarding inventory management, objectives and methodology. Present in chapter-2 and chapter-3 gives a brief profile of organization , data analysis and interpretation. Present in chapter-4, the 5 and the last chapter is findings and suggestions .

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CHAPTERIII INDUSTRIAL PROFILE ORGANISATIONAL PROFILE

22

INDUSTRY PROFILE

AUTOMOBILE INDUSTRY: The Indian automotive market managed to stand to the vagaries of the economic meltdown to show slightly positive growth during fiscal 2008-09. Overall vehicle sales at 97.23 lakh grew 0.71 per cent from 96.54 lakh units in 2007-08.

AUTOMOBILE DOMESTIC SALES TRENDSNo. OF VEHICLES Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 3,64,781 72,49,278 9654435 3,49,719 74,37,670 9723391 -15062 188392 164691 -4.13 2.6 0.71 4,90,494 3,84,122 -10637 -21.69 2007-08 15,49,882 2008-09 15,51,880 DIFF 1998 GROWTH % 0.13

COMMERCIAL VEHICLES SEGMENT:

The Indian Automobile sector is presently going through a phase of slow down for the last two years i.e. 2007-08 and 2008-09. The sector witnessed a net decline in production in 2007-08 of (-) 2.29% and in 2008-09 the sector posted a modest growth in

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production at 2.96% over 2007-08. The worst affected segment in the auto sector is the Commercial Vehicle segment, which has witnessed a production decline by almost 24% in 2008-09 over the previous year. The medium and Heavy Commercial vehicle category has been the hardest hit which has seen a decline in production by 35% in 2008-09. The exports of CVs have also plummeted. The department of heavy industry has taken the initiative to ensure that under the Stimulus Package-II announced by the Government, the state governments will be allowed to buy transport vehicles (buses) under the JNNURM programmed. Among commercial vehicle makers, all major players saw substantial fall in volumes. Market leader Tata Motors with a 60 per cent plus share, showed 22 per cent drop in numbers at 2.34 lakh units while Ashok Leyland showed 37 per cent drop at 47,632. Eichers sales volume fell 37 per cent at 17,341 units and Force Motors was down 28 per cent at 7,819 units in 2008-09. The freight movement is unlikely to improve this fiscal which will impact truck sales.

AUTO COMPONENTS INDUSTRY:

In 2008-09, the automobile industry grew 2.96 % but the components industry outpaced the vehicle manufacturers with a 6 per cent growth. The total value of auto parts sold is Rs. 76,300 crore from Rs 72,000 crore. During the year both automotive industry and the auto-component industry adversely affected by a unprecedented increase in the prices of major input materials along with the pricing pressures due to the economic slowdown, put significant pressures on the margins of the automobile manufacturers and the auto-component manufacturers.

PROSPECTS:
As per SIAM estimates, passenger vehicles are expected to record a sales growth of 3-5 per cent in FY09-10, commercial vehicles at 7-10 per cent (over a low base of the previous fiscal), two-wheelers at 0-5 per cent and three-wheelers at 5-8 per cent. According to SIAM in the fiscal 2009-10, passenger vehicles are expected to have sales of 18.9 lakh to 19.2 lakh units. Commercial vehicles have been forecast to clock sales of 5.2-5.4 lakh units, while two-wheelers sales have been pegged at 83.4-87.6 lakh units .The Indian auto components industry has an estimated production of US$ 10 billion. The spiraling demand from domestic and international auto companies has seen

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this sector emerging as one of the fastest growing manufacturing sectors in India and globally. The Auto components industry is predominantly divided into five segments: Engine parts Drive Transmission & Steering Parts Suspension & Brake Parts Electrical Parts Body and chassis According to the ACMA (Auto Components Manufacturers Association of India), the sector is set to grow at a CAGR of 15 per cent till fiscal 2012. This sector is now working towards an open market. A large number of joint ventures with leading global manufacturers have already been set up in the auto-components sector. And with India estimated to have the potential to become one of the top five auto component economies by 2025, the pace is expected to pick up even further. Moreover the automotive components industry is perceived as a lucrative sector with tremendous potential for foreign direct investments. The year 2006-07 saw the auto components sector soar with exports touching the US$ 3 billion mark and investments continuing unabated. The ACMA estimates the global sourcing of components from the country to double from US$ 2.95 billion to US$ 5.9 billion in 2008-09, and touch US$ 20 billion in seven years owing to the huge and growing markets both within India, and overseas.

Domestic Investments
The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations: Bharat Forge invested US$ 135 million in its Pune plant for increasing domestic capacity to 240,000 tones.

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Amtek Auto is expanding capacity of its castings unit to 70,000 tonnes per annum

(TPA) from 30,000 TPA.

Sona Koyo plans to have capacity of three million pieces of manual steering

gears, 500,000 units of hydraulic power steering and 250,000 units of electronic power steering (EPS), apart from doubling the capacity of steering columns from one million parts. Rico Auto is investing US$ 23 million to expand capacity.

Apollo Tyres plans to invest US$ 469.58 million in the next three years to increase its
production capacity both in India and abroad.

Kesoram Industries is planning to set up three new tyre units in the northern state of
Uttaranchal to take its tyre-making capacity to 734 metric tonnes per day. With such accelerating interest by both domestic and foreign investors, the Indian auto component industry is set to growth exponentially.

Foreign Investments
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 percent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector (a whopping US$ 530 million in terms of foreign direct investment), the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next five years to increase India's share in the global auto components market from the existing 0.4 per cent to 3-4 per cent.

Chrysler is setting up a local sourcing unit in Chennai and is expected to start

sourcing for its global plant by next year.

Pal finger AG, the Austrian hydraulic lifting, loading and handling systems

manufacturer, has joined hands with Western Auto LLC, Dubai, the vehicle dealership arm of ETA Star group, have invested US$ 1.7 million to set base in India.

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IFCI Venture Capital Funds Limited is launching a private equity fund in

association with German consultancy UBF-B worth US$ 144.67 million focused entirely on domestic automotive components industry.

Auto parts maker Robert Bosch of Germany will invest US$ 201.4 million in its

Indian subsidiaries over the next two years.

Japans Omron Corporation, the leading manufacturers of automation components

has set up the company's first production base on the subcontinent.

Swiss company Reiter Automotive India aims to increase its production capacity

in India and extend its product range to heat shields

Fiat is setting up a group purchasing office in India as part of its strategy to cut

costs by buying more components from low-cost centers such as India and China.

Daimler, Hero joint venture will invest US$ 1.1 billion in 5 years to manufacture

light and medium CVs initially, and heavy-duty vehicles by 2012.

Destination India
The ACMA-McKinsey Vision 2015 document forecasts the potential for the Indian auto component industry to be US$ 40-45 billion by 2015. Investments and exports in this segment are witnessing continuous growth. Global automobile manufactures see India as a manufacturing hub for auto components and are rapidly ramping up the value of components they source from India due to:

The cost competitiveness in terms of labor and raw material Its established manufacturing base Fine quality of components manufactured in India (used as original components

for vehicles made by General Motors, Mercedes, IVECO and Daewoo among others). As a result Japanese and British component manufacturers are seeking joint-ventures in India. Delphi, the auto component division of General Motors is planning to set up plants in India. Robert Bosch, auto parts maker of Germany has relocated manufacture of certain products to MICO, India. Crosslink International Wheels, Malaysia's leading

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automobile security provider has set up its manufacturing unit at Baddi to make India the export hub for the SAARC region. Foreign auto makers, including Ford Motor Co., General Motors Corp., Honda Motor Co., Toyota Motor Corp., DaimlerChrysler AG and Hyundai Motor Co., are all looking to increase their presence in India and use it as an export hub. The Indian automotive export industry has made a global mark. Both the automobile industry along with the component industry is contributing to Indias overall export effort. According to ACMA, more than a third (36 per cent) of Indian auto component exports head for Europe, with North America featuring a close second at 26 per cent. The Indian automotive industry has grown at a CAGR of 14 percent p.a. over the last 5 years sales of vehicles reaching around 9 million vehicles in 2005-06. It has the potential to emerge the largest in the world. Presently, India is: 2nd largest two-wheeler market in the world 4th largest commercial vehicle market in the world 11th largest passenger car in the world and is expected to be the 7 th largest

market. The industry has emerged as a key contributor to the Indian economy.

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2004-05 2005-06 Turnover Growth rate(%) Export Growth rate(%) Imports Growth rate(%) Investment Growth rate Imports as % of Turnover Exports as % of Turnover 8.70 29% 1.69 34% 1.90 33% 3.75 21% 22 20 12.00 38% 2.47 46% 2.48 30% 4.40 17% 21 21

2006-07 2007-08 2008-09 2009-10 15.00 25% 2.67 8% 3.60 45% 5.40 23% 24 18 18.00 20% 3.52 32% 5.22 45% 7.20 33% 29 20 18.40 2% 3.80 8% 6.80 30% 7.30 1% 37 21 22.00 20% 3.80 8.16 20% 9.00 23% 37 13

2010-11(E) 26.00 18% 5.00 32% 12.00 33% 18

AUTO COMPONENT INDUSTRY-STATISTICS (VALUE IN US $ BILLION)

29

Automobile Domestic Sales Trends

(Number of Vehicles)

Category

2003-04 2004-05 2005-06 2006-07

2007-08 2008-09 2009-10

Passenger Vehicles 902,096 1,061,5721,143,0761,379,979 1,549,8821,552,703 1,949,776 Commercial Vehicles 260,114 318,430 351,041 467,765 Three Wheelers Two Wheelers Grand Total 284,078 307,862 359,920 403,910 490,494 384,194 531,395 364,781 349,727 440,368

5,364,2496,209,7657,052,3917,872,334 7,249,2787,437,619 9,371,231 6,810,5377,897,6298,906,42810,123,988 9,654,4359,724,243 12,292,770

30

31

32

33

The developments in the Indian auto component industry can be traced to trade liberalization during the 1990s that resulted in an influx of multinational automotive companies like ford, general motors, Hyundai, Mercedes-Benz, Peugeot and

34

Volvo into India. The entry of these foreign auto companies during the early 90s changed quality standards and impacted the complexity of the parts required by OEMs. Consumers reacted favorably to the expanded set of offerings and consequently the demand for cars in India surged. For example, the sale of foreign brand cars grew from almost nothing before the entry of Hyundai in 1997 to 15% of the car market in the year 1998-99 to more than 25% of the car market in 2004-05. the auto market, consisting of passenger vehicles, commercial vehicles, two wheelers, three wheelers and tractors, expanded from a sales level of 3.3 million vehicles (417,762 passengers vehicles alone) in the year 1995-96, to nearly 6.8 million vehicles (900,752 passenger vehicles) during 2003-04. The Indian auto component industry responded to these challenges by adding capacity and modemizing existing plants. The total sales volume of auto components has increased from $2.9 billion in the year 1999 to $7 billion in the year 2004. Many firms entered into technical collaboration and equity partnership global tier-one suppliers. Global tier-one suppliers like Delphi and Visteon set manufacturing units in India. During this period, there was significant growth in multinational companies ($1 billion in 2003-04, as against $0.27 billion in 1997 exports are still very compared to annual global auto component sales, which was $730 billion, they are a significant share of the sales ( approximately 10-12%) components firms. Before Maruthi, the auto component industry was characterized by low volumes, high fragmentation, negligible auto machine and consequently poor quality. This was simply because the automobile industry did not have any volumes worth talking about. Maruthi challenged all that (in the process, Indian car producers in the first year it self by making 22,500 vehicles) For the first time the Indian market hand volumes worth speaking of a product that was exportable and proper systems. They key of course is the export-worthiness of the Maruthi 800, Zen, something total alien to the industry before. So as Maruthi grew crossing the 1, 00,000 mark by 1989-90, the component industry boomed in tandem. In the meantime, other Japanese majors like Honda, Yamaha, Toyota and Mitsubishi also flagged off two-wheelers and light commercial vehicles production. This paved the way for foreign collaborations in the component sector, and till date some 95 Japanese alliances have been struck. Maruthi it self floated 11 joint ventures (JVs) and has as many as 375 vendors.

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That was just the first step in the process of Indian component marks producing globally competitive products. The next best thing to happen to this sector was the recession of 1992-93. To maintain their viability, ancillary had little choice but to focus on export markets, and step up quality. This is evident in the spate of ISO 9000certifications those component makers began to receive. Of the roughly 350 companies in this sector, at least 130 have bagged ISO 9000 certification, something no other industry can boast of. The step up process has not ended with the Japanese innovation. Gradually manufacturers from ale parts of the world are making a beeline for India.

Result: Component makers are now exposed to different, more complex and advanced
development processes. Earlier, they were dealing with just one culture, one standard Japanese. Today we have the Koreans, the Americans, the Europeans and the French coming with their global suppliers in to the country. Ford, for instance, is flagging off the ford ACG (Automotive component group) and general motors have brought in Delhi. Toyota too, is creating a Toyota village around its manufacturing unit in the south, as is Hyundai, which will house all its ancillary suppliers in an industrial park. In the south, auto archly has been taken over by US Major Rockwell. Saks Ancillaries has suffered the same fate Joint ventures though, are imperative and at last count there were at least 322 collaborations with foreign auto majors.

The Reason: Access to technology to differentiate your product from the scores in the
market. Consider the Ran group, which has hired off its clutch business with luck of Germany into a 50:50 joint venture. The guiding principle, behind the venture is the opportunity to bring new technology in to the country. We are not getting the same satisfaction in the clutch business as we were getting from our other activities. Our partner is probably number 1 in clutches world. We believe that we will be able to achieve leadership position in a couple of years, says Ran group Chair Man L. Laxman.

Over the past 3 years the Indian auto component industry has been consistently exporting at least 20% of its production. In 1996-97 exports were worth a cool $ 300 millions (Rs.1, 170 Crores). In 5 years, overseas sales are expected to more than triple to

36

all of $ one billion.

ORGANISATION PROFILE
Origin and growth of the organization:
Kusalava International Limited was established in the year 1964. It was earlier known as Bharat industries where it was started as a small work shop. But later the name was changed to Kusalava International Limited. To manufactured cylinder liners under the brand name of TIGER POWER. The chairman of Kusalava International Limited is Mr. Chukkapalli Kusalava. Kusalava International Limited is one of the largest cylinder liner manufactures in INDIA. Today TIGER POWER brand is the most dynamic name in the cylinder liner manufacturing business. Kusalava International Limited has nearly 38 years of industrial manufacturing experience in the field. Nearly 50% of the production goes to original equipment. Kusalava International Limited had geared up to meet the technological changes and

37

world standards. It also in the stood the competition in the world market which arose done to the establishment of world trade organization. Kusalava International Limited has consistently delivered quality automotives components in line with the specific of automobile majors in India and for the aftermarket spare parts segments to various countries like U.S, Italy, New Zealand, Bangladesh, Australia, Malaysia, Thailand, Mauritius, and the Middle East.

QUALITY, ENVIRONMENT AND SAFETY POLICY:

We are committed for the satisfaction of all interested parties by:

Supplying quality products on time. By providing Clean, Green, Healthy and Safe Work Environment. Complying with all applicable Legal and Other Requirements Conservation of Resources & Prevention of Pollution. Continual Improvement in all the Integrated Management System Process.

TPM POLICY
Kusalava International Ltd commits their selves to maximize Overall plant Effectiveness by achieving:

Zero Breakdowns Zero Accidents Zero Defects A Safe and Clean Environment and eliminate all other losses through Total

Employee Involvement.

Growth of the company:

Kusalava International Limited belongs to Kusalava group of companies. Its honorable chairman and promoter is Mr. Chukkapalli Ramakrishna Prasad. The group of

38

companies and their activities. 1). Kusalava Motors (P) Ltd : The company is involved in the activity of trading 2 Wheelers and 4 Wheelers, it is the official dealer for TVS Motors and Hyundai Cars in the cities of Vijayawada, Guntur, Ongole, Bhimavaram and Gudivada. 2). Kusalava Informatics: Started of as an in-house software arm for developing an integrated ERP solution, the division has been spun off into a separate company in 2006. Since then the company has been working on many projects with overseas clients and has seen unprecedented growth. Please visit www.kusalavainfo.com. 3). Kusalava Finance: The company has been established way back in 1970 and is engaged in the business of financing automobiles. The company has been able to carve a niche of itself in the automotive sector by offering clients customized financing options as per their needs. 4). Kusalava Power: The company is involved in the business of power generation and has a total generating capacity of 3 MW. 5). Kusalava Realty: The Company is involved in the business of developing housing, apartments and shopping malls. 6). Bharat Automobiles: The company activities involve trading is automobile spare and represents a host of reputed manufacturers like Bharat Forge for Crank Shafts, Timken for Bearing, Maple for Pistons and Kusalava for Liners. The company operations and network spread across entire south India. 7). Kusalava Inc: The Company is a trading firm located in Houston, Texas, USA and is involved in the activity of sourcing automotive components from India and China to OEM's in USA. The company has products stocked in 22 warehouses across USA to supply to customers on a JIT basis. 8). Sneha Biotech: The Company is research firm, which focuses on development of products using biotechnology for agriculture, marine industry and humans as well. The products are used as a substitute to chemicals & fertilizers in agriculture and aqua industries and are used as substitutes to drugs for humans.

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MILESTONES IN TIGER POWER MANUFACTURING:

1964: Kusalava International Limited comes into existence as M/S Bharat Industries. Products: Brake drums During the inception year itself supplies were started to OEM, Bajaj Tempo. 1972: Started production of grey iron cylinder liners. Started supplies to major road transport corporations (STU's) 1982: Supplies to replacement market with TIGER POWER-TOUGH PARTS Brand name. 1986: Installed the first Dual Track Induction Furnace in India. 1987: Became the major source for Defense Vehicle Factory 1990: Exported its first consignment to New Zealand. 1992: Tiger Power became the major supplier of cylinder liners in After Market 1994: Emerged as the Largest cylinder liner manufacturer in India. 1995: Kusalava commissions its first overseas office in Houston, Texas, and USA ISO: 9002 certified. 1996: Sales figures crossed of 1 million USD. Kusalava becomes a limited company. 1998: QS-9000 certified 1999: Started production of Ductile Iron castings. 2000: ISO/TS 16949 certified. 2002: Turn Over crosses 10 millions USD. 2003: Introduced Six Sigma Process. Awarded by ACMA for Best Six Sigma Project in 2003 2004: Introduced Lean Manufacturing Practices. Received the best supplied award from EICHER MOTORS, for outstanding contribution

40

to supply chain management. Awarded by ACMA for Best Six Sigma Project in 2004 again. 2005: Entered into an agreement with the Market Leader Darton Sleeves, USA for supplying High Grade Ductile iron liners to the Drag Racing Market. 2006: Total PM Kick off on July 3rd 2006. Kusalava commissions new plant at pantnagar, Uttarakhand. 2007: Turn over crosses 20 million USD. Kusalava commissions new plant at Visakhaptnam, Andhra Pradesh.

ORGANIZATIONAL CHART OF KUSALAVA INTERNATIONAL LIMITED

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MANAGING DIRECTOR Maintenance Maintenance Engineers Director Quality Quality Vice Manager Technical Control Control Preside Director Production Production Opera Manager Engineers Super nt Production Engineer Manager Manager Product tor visor Operati Product Developmen ons General Director Development Sales Manager Exports t Engineers Officers Vice Marketing Marketing Exports Asst. President Manager Dispatc Dispatch Store Manager International Purchase h Clerk Supervisor s Director Business Manager Customer Dispatch Clerk Purchase Dispatc Representati Superviso h Clerk ve r Project Manager Accountant Manager Director Accounts s General Manager Internal Finance Manager Internal General Auditors IT Audit Manager IT Support Manag Information & Engineers er Technology Director Asst. Human Manager Assistant Manager Resources

Locations:
Kusalava international Ltd is located in Autonagar in the city of Vijayawada situated in the state of Andhra Pradesh in India. This Industry has two production units. Unit-1 is situated in Adavinekkalam, which is 25 kms from Vijayawada, where as Unit2 is situated in Autonagar of Vijayawada. The main administration is at Adavinekkalam unit which is in the city of Vijayawada and other branches at Visakhapatnam and Rudrapur. A part from these branches, other branches are situated out of our country like the ones in USA, Middle East. Etc. There is a wide distribution are network of Kusalava International Ltd at different places in India at 1) 2) 3) 4) 5) COCHIN BANGALORE HYDERABAD PUNE MUMBAI

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6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16)

17)

AHMADABAD INDORE RAIPURE KOLKATA PUNCHI PATNA JAMSHEDPUR KANPUR JAIPUR LUDHIANA CHANDIGHAR DELHI

Nature of Activity: Product Manufactured

1. Cylinder Liners Cylinder liner is a cylindrical part to be fitted into an engine block to form a cylinder. It is one of the most important functional parts to make up the interior of an engine the cylinder liner, serving as the inner wall of a cylinder, forms a sliding surface for the piston rings while retaining the lubricant within. The most important function of cylinder liners is the excellent characteristic as sliding surface and these four necessary points.

High anti-galling properties Less wear on the cylinder liner itself Less wear on the partner piston ring Less consumption of lubricant

43

The cylinder liner receives combustion heat through the piston and piston rings and transmits the heat to the coolant. A cylinder wall in an engine is under high temperature and high pressure, with the piston and piston rings sliding at high speeds. In particular, since longer service life is required of engines for trucks and buses, cast iron cylinders that have excellent wear-resistant properties are only used for cylinder parts. Also, with the recent trend of lighter engines, materials for engine blocks have been shifting from cast iron to aluminum alloys. However, as the sliding surface for the inner cylinder, the direct sliding motion of aluminum alloys has drawbacks in deformation during operation and wear-resistance. For that reason, cast iron cylinder liners are used in most cases. 2. Cylinder Liners for Aluminum Blocks Global warming has started to show its adverse effects on the environment. To improve the fuel efficiency and adhere to latest Euro norms automobile manufactures are shifting towards aluminum engines. These engines have as cast cylinder liners with special surface on the outer diameter commonly referred to as spiny lock or stipple finish. To improve rigidity and high thermal conductivity properties of engine blocks, Kusalava has developed different specifications of cylinder liners that have high adherence to aluminum blocks at the time of die casting by controlling the coarseness of the outer casting surface with the special coating materials and in-process controls. 3. Grey & Ductile Iron Piston Rings Kusalava has developed materials with special properties in grey and ductile iron by centrifugal casting process for critical sealing applications. These rings are being supplied to Automotive, Locomotive, Marine, and Power generation, Aircraft, Aerospace and Hydrocarbon processing Applications. We also supply rough machined rings to ring manufactures around the world in ductile and grey iron materials.

4. Centrifugal Castings
Centrifugal casting method was developed after the turn of the 20th century to meet the need for higher standards. Spinning molds generate centrifugal force on molten metal to position the metal within a mold. As the molten metal solidifies from the outside in, a casting with dense, close grain structure is created. As a result of close grain structure

44

the centrifugal process offers products with better physical properties than castings made using the static casting method. Proper mold design, mold coatings, mold spinning speeds, pouring speeds, cooling rates and metal chemistry results in castings with higher yields, fewer impurities and greater strength.

45

Quality 46

Six Sigma
A method or set of techniques, Six Sigma has also become a movement focused on business process improvement. It is a quality measurement and improvement program originally developed by Motorola that focuses on the control of a process to the point of six sigma (standard deviations) from a centerline, or put another way, 3.4 defects per million items. A Six Sigma systematic quality program provides businesses with the tools to improvethe capability of the business processes. Kusalava had started implementing these techniques in 2002.The company had 5 Black belts and 14 Green Belts. And it was awarded twice for its best projects. It had tangible results in terms of quality and production.

Infrastructure
1. Plants Location of Plant 1 Address Adavinekkalam, Vijayawada. Adavinekkalem, Agiripalli Mandalam,

Krishna District, AP 521212, India Products Area Operations Location of Plant 2 Address Products Area Operations Cylinder Liners, Piston Rings, Valve Seats & centrifugal castings. 14.43 acres Casting & Machining. Autonagar, Vijayawada. B-4, Industrial Estate, Vijayawada 520007, India Cylinder Liners, Valve Seats. 2.6 Acres Machining.

Location of Plant 3Rudrapur, Uttaranchal. Address Plot No.10, Sector-2,IIE Pant Nagar,Rudrapur,UddamSing Nagar,Uttaranchal-263 153,India Products Area Operations Cylinder Liners 3.35 Acres Casting & Machining.

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Location of Plant 4 Address Products Area Operations

Special Economic Zone, Visakhapatnam. Kusalava International Ltd., VSEZ, Duvvada,Visakhapatnam -530046,India Cylinder Liners 7.16 acres Machining.

TIGER POWER The Tough Parts

TIGER POWER TOUGH PARTS has dovetailed their process to give peak performance with best quality at affordable price a tangible result. We are proud to say now TIGER POWER TOUGH PARTS is complete Global. Most of the vehicle manufacture in the Indian domestic market has a tie-up with international manufactures like Mazda, Hino, Mercedes Benz, Mitsubishi etc.,, Kusalava International Limited supplies their product to the bellow OEMs in India who has international collaboration.

LIST OF DOMESTIC O.E.M. CLIENT:

Product wise market share comparison with competitor. S.No. COMPANY Ashok Leyland Ltd TELCO Eicher Motors Bajaj Tempo Ltd Swaraj Mazda COLLABIRATION Hino-Japan & British Leyland Mercedes Benz Mitsubishi Daimler Benz Mazda TP SHARE 100.00% 70.00% 100.00% 100.00% 100.00% 100.00%

V.S.T. Tillers Tractors Ltd Mitsubishi

And for the international Market, Kusalava international Limited had a start 5 years back and supplying the products after quality validation for the below customers. Interestingly, Kusalava has worked in tandem with the above international collaborated Indian OEMs to achieve their stringent quality requirement both in Foundry and Machining. The above OEMs contribute 30% of Kusalava International Limited turnover. Technical officers from Kusalava have played a vital role in establishing and

48

understanding the International specification for the domestic OEMs and had good report for working hand in hand to meet the drawing print specifications. And for the International Market Kusalava International Limited is supplying the products after quality validation for the below customers.

DOMESTIC AFTER MARKET:

KUSALAVA had started supplying its products to the after market under the brand name TIGER POWER since 1982. It has a dominating presence in the after market and enjoys the confidence of major engine rebuilders/reborers, OEMs and mechanics. Currently it possesses a market share of 35% in India and 30% in USA. Even Exports a major share of its production to various countries across the globe viz., Italy, U.K., France, New Zealand, Bangladesh, Australia, Malaysia, Thailand, Mauritius and the Middle East. It had wide-spread, well established networks in India, USA, Canada and Europe to serve its clients on 24x7 bases. Tiger Power offers a wide range of The Tough Parts' like Cylinder Liners/Sleeves, Valve Seat Inserts, Valve Guides, Tappets, Pistons, Piston Pins, Gaskets, Alfin Nickel Inserts, cast sleeves for aluminum blocks, cast iron/Ductile Iron Pipes, Inertia Rings. It caters to Marine, Industrial, Automotive, refrigeration, and compressors, Tractor, Aeronautical and Truck Business. It also caters to the after market requirements by indirectly supplying the liners in Bulk to Liner manufacturers.

Company Product:
Kusalava manufacturers Liners/Sleeves in both cast iron and S.G. Iron, Centric cast valve seat insert and Alfin Piston inserts. As a new development Kusalava has started manufacturing the engineering items out of its own technology like 3 mts., pipes for ash disposal for the thermal power plants, sugar crushers material, and motor frames for the heavy electrical motors.

STRENGTHS:
Equipped with the latest technology (in houses) in the industry to manufactur any

variety of Cylinder Liners as per Customer Having a Track record of 45 years requirements meeting international standards

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 Highly automated with state of the art technology having the complete manufacturing

facilities in house Continuous R&D in house to have an edge over the competition TS 16949 Certified Company Good brand image
Major supplier to domestic OEMs like Tata Motors limited, Ashok

Leyland Ltd,

Eicher Motors Ltd, Bajaj Tempo Ltd, Swaraj Mazda Ltd, VST Tiller Ltd and International OEMs as Tier 2
Good Distribution Network all over India in the aftermarket and USA

Wide spread Customer segmentation Implementation of Lean Manufacturing Dedicated Manpower

Professional approach to the market Multi-location facilities.

Technology Up gradation:
Kusalava has developed the basic technical requirement for the manufacturing of their products, and in line to develop the technical strength hires experts from Germany for upgrading the foundry technology in line to the International practices. Till Kusalava has taken 3 rounds of experts views to validate their process and to fine tune their existing process for better productivity. Most significantly, Kusalava deputes their technical managerial personal for the training in different institutes for betterment of their knowledge and practices. Mr. Prasad R.K Chukkapalli, Managing Director of the company has visited Japan under AOTS programmed for 15days technical training in Quality Systems during the first week of October 02.

ERP Software:
Kusalava has in house software development Center, and presently implementing self developed ERP System of K Online integrating Finance, Manufacturing,

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Distribution and HR Activities across INDIA and USA offices. At KOnline, we understand the strategic role supply management must play in a corporation today and the significant impact a supply chain management strategy can have on earnings. Supply chain management solutions help companies transform supply strategy into a competitive advantage. We combine expertise, technology and information to help you bring immediate value and profit your companys bottom line. It was used by the firm in the past

SAP SOFTWARE: Recently SAP SOFTWARE was introduced in KUSALAVA

INTERNATIONAL LIMITED.

A SIMPLE EXAMPLE OF THE SUPPLY CHAIN LOOP SALES NET WORK-USA

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SALES NETWORK - INDIA

VISION:
To produce Quality auto component products the matching best available in the

world in terms of innovative design features and endues at competitive cost deliverable in time and maximize customer satisfaction to ensure constant increase in market share and global presence for the company.

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MISION:
To constantly strive for automation and technology up gradation of companys

plant process and product to maximize customer satisfaction and efficient use of resources at companys disposal to optimize production and minimize cost.

To trigger higher demand for companys

products both Domestic and

International Market and there by improve market share.

To improve both

top line and Bottom Line of the company to ensure

optimureturns for all stake-holders of the company.

To make

Kusalava a true global

conglomerate through professional strict adherence to regulatory

management, corporate governance initiatives and compliances.

FUNCTIONS OF DIFFERENT DEPARTMENTS: Production:

Production department takes the raw materials and melts it down in the electrical induction furnace. It makes rough casting through centrifugal dice. In production department production engineer does operations according to all the liners drawings. These operations will be finished on different machines. It takes 8 10 operations. After completion of these operations finished liners will be sent to quality control department to check the quality of the liner manufactured.

Materials:
Material department purchases the raw material on the parameters like good quality in time delivery, credit facility and on the right time acquiring the raw materials cost variability.

Marketing:
Marketing departments sells the products through marketing representatives, sales offices and distributors. This department gets the orders from the customers through the representatives, sales officers and distributors. This department sends the senior engineers to check complaints of the customers. This department provides incentives to sell the product in the market.

Finance: 53

This department makes economic plans and helps in decision making through MIS which are needed in survival and profitability of the organization. This departments work to the requirements of loans and take necessary steps to acquire them from banks and other financial institutions. It also prepares and sends yearly expenditure and net profits to the management. It took into the matters like fluctuations of profits, change in got policies and sales, market conditions and orders being placed.

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CHAPTER IV DATA ANALYSIS AND INTERPRETATION

EOQ:
The quantity of material to be ordered at one time knows an economic ordering quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs. Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling

55

models. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. The model was developed by F. W. Harris in 1913, but R. H. Wilson.
Economic order quantity (EOQ) is that size of the order which gives maximum economy in purchasing any material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost. In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost. The quantity to order at a given time must be determined by balancing two factors: (1) the cost of possessing or carrying materials and (2) the cost of acquiring or ordering materials. Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period of time.

Total cost of material = Acquisition cost + carrying costs + ordering cost. Carrying cost:
It is the cost of holding the materials in the store.Also called Holding cost, carrying cost is the cost associated with having inventory on hand. It is primarily made up of the costs associated with the inventory investment and storage cost. For the purpose of the EOQ calculation, if the cost does not change based upon the quantity of inventory on hand it should not be included in carrying cost. In the EOQ formula, carrying cost is represented as the annual cost per average on hand inventory unit.

Ordering cost:
It is the cost of placing order for the purchase of materials.EOQ can be calculated with the help of the following formula Also known as purchase cost or set up cost, this is the sum of the fixed costs that are incurred each time an item is ordered. These costs are not associated with the quantity ordered but primarily with physical activities required to process the order. For purchased items, these would include the cost to enter the purchase order and/or requisition, any approval steps, the cost to process the receipt,

56

incoming inspection, invoice processing and vendor payment, and in some cases a portion of the inbound freight may also be included in order cost
Underlying Assumptions of Economic Order Quantity:

The ordering cost is constant. The rate of demand is constant The lead time is fixed

The purchase price of the item is constant i.e. no discount is available

The replenishment is made instantaneously; the whole batch is delivered at once. Benefits:

EOQ calculations are frequently used in business, both by production, purchasing and inventory managers. This tool provides everything it takes to make reliable calculations. In addition, it automatically computes the reorder point (= the amount of inventory at which new orders must be placed) and order cycle time in days, both if there is a lead time (= period between the placement of an order and its receipt in inventory) or none. An automatically generated chart based on input data can be directly exported to any presentation.

EOQ=2RCO/CH

INVENTORY TURNOVER RATIO: Inventory turnover ratios is calculated to indicate whether inventories have been used efficiently or not. The inventory turnover ratio also knows as stock velocity is normally calculated as sales/ average inventory of cost of goods sold/average inventory. Inventory conversion period may also be calculated to find the average time taken for clearing the

57

stocks. Symbolically

Cost of goods sold Inventory Turnover Ratio = -------------------------------Average inventory at cost (Or) Net Sales = ---------------------------Inventory (Average)

INVENTORY CONVERSION PERIOD:

Days in a year Inventory conversion period = -------------------------------Inventory Turnover Ratio

THE PERCENTAGE OF INVENTORY IN CURRENT ASSETS:

Inventory The percentage of inventory in Current Assets = --------------------Current Assets

RE ORDER LEVEL: LEVEL: When the quantity of materials reaches at a certain figures then fresh order is sent to get material again. The order is sent before the materials reach minimum stock level. Re ordering level is fixed between minimum level and maximum level.

Re-ordering level = Maximum consumption x Maximum Re-order period. 58

Delivery time: 4-6 weeks. Normal Usage: 7 weeks.

Re-Order Level=Maximum Usage x Maximum Delivery Time

MINIMUM LEVEL: Minimum stock level: It represents the quantity below its stock of item should not be allowed to fall. Lead-time: A purchase firm requires some time to process the order time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing it is known as lead time. Rate of consumption: It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans. Nature of material: The nature of material also affects the minimum level. If a material is required for such material. Minimum stock level can be calculated with the help of following formula.

Minimum stock level = Re ordering level - (Normal consumption x normal re order period

MAXIMUM LEVEL: It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds minimum level limit then it will be overstocking. Overstocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more chances of losses from obsolescence.

59

Maximum Stock Level = Re-ordering Level + Re-order Quantity (Minimum consumption x Minimum Re-order period)

AVERAGE LEVEL: This stock level indicates the average stock held by the concern.

Average stock level = Minimum stock level + x Re-order quantity

TABLE:1

RAW MATERIAL:

ANNUAL CONSUMPTION YEAR IN M/T (R)

ORDERING COST IN RS. (CO)

CARRYING COST IN RS. (CH) EOQ IN M/T

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2006 2007 2008 2009 2010 CHART:-1

5446 6108 6905 5168 7772

10 10 10 10 10

216 407 250 555 495

22.44 17.30 23.48 14.00 16.00

INTERPRETATION: When compared to all the years, the EOQ is high in the year 2007. Because in this year, the annual demand is higher than the rest years. Due to highly ordering of Raw material, the carrying cost will be less.

TABLE:2

CYLINDER LINERS:

ANNUAL YEAR 2006 CONSUMPTION R 11785983

ORDERING COST CO 10

CARRYING COST CH 4.1

EOQ IN NOS 3559

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2007 2008 2009 2010 CHART:2

24859847 17293582 10203 189581

10 10 10 10

7.09 3.67 7 7.3

2984 4808 3255 3311

INTERPRETATION: EOQ for cylinder liner was comparatively high in the year 2008, it was 4808 nos. This was due to the increased demand in the market for the same period. In this year carrying cost also low.

TABLE:3

INVENTORY TURNOVER RATIO

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INVENTORY YEAR SALES INVENTORY TURNOVER RATIO 370959201 484833736 500922885 670730918 805074792 56925237 68352276 67352546 134707864 213142088 6.52 7.09 7.44 4.97 3.77

2006 2007 2008 2009 2010 CHART:3

INTERPRETATION: In the year 2008, the Inventory Turnover Ratio was very high than the rest of the years. It implies good inventory management. In the year 2010, it was 4.81 it was very lower than the other years. It means excessive inventory or it may be overinvestment in inventory. Excessive inventory due to funds locked up, rental of space.

TABLE:4

INVENTORY CONVERSION PERIOD IN DAYS 63

YEAR

INVENTORY TURN OVER RATIO 6.52 7.09 7.44 4.97 3.77

INVENTORY CONVERSION PERIOD IN DAYS 56 51 49 74 97

2006 2007 2008 2009 2010 CHART:4

INTERPRETATION: Inventory conversion period was decreasing from 2006-2008. It was very good to the firm. But in the years 2009 and 2010, it was increased. It may be due to the inflation. Being the price of the product was increasing and the sales were decreased. So the inventory conversion period increased. But it should be decreased.

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TABLE:5 PERCENTAGE OF INVENTORY IN CURRENT ASSETS YEAR 2006 2007 2008 2009 2010 CHART:5 INVENTORY 56925237 68352276 67352546 134707864 213142088 CURRENT ASSETS 157939330 234814785 275344324 376047336 453569567 PERCENTAGE 36.04 29.1 24.46 35.82 46.99

INTERPRETATION: The Kusalava International Limited was giving more importance to inventory in Current Assets. In the earlier year they gave more preference to inventory. This will show the percentage of inventory in totals Current Assets. Inventory plays a vital role in the total Current Assets. More attention has to be played by the management towards Inventory as it consists 35% of Current Assets.

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TABLE:6

RAW MATEIAL:

YEAR

RE-ORDER LEVEL IN M/T 5040 5664 6384 4848 6048

2006 2007 2008 2009 2010 CHART:6

INTERPRETATION: In the year 2008, at 6384 M/T of Raw material, the order should be placed. Because the annual demand is high but the Re-order level was decreased. It may be happened due to decrease in the demand of final product

TABLE:7

CYLINDER LINERS:

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YEAR 2006 2007 2008 2009 2010

RE-ORDER LEVEL IN NOS 2397312 2913744 3915246 3429840 3693120

CHART:7

INTERPRETATION: By comparing the Re-order levels in all the years, it was 3915264 nos in the 2008. At the level of 3915264 nos the order was placed. So definitely there should be high annual demand for the finished product where as in the year 2006 the reorder level was 2397312 nos but it was gradually increased that means annual demand was increasing.

TABLE:8

RAW MATERIAL:

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YEAR 2006 2007 2008 2009 2010

MINIMUM LEVEL IN M/T 4515 5074 1729 1313 1638

CHART:8

INTERPRETATION: Minimum level was reduced. Because by reducing the storage cost and to avoid the obsolete goods.

TABLE:9

CYLINDER LINERS:

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YEAR

MINIMUM LEVEL IN NOS

2006 2007 2008 2009 2010

649272 789139 1060384 927290 1000220

CHART:9

INTERPRETATION: In the year 2006, they maintained only 649272 nos as Minimum level. But it was gradually increasing. That means the production was increasing. But in 2008, the production is high so they maintained 1060384 nos as minimum level but in 2009 it slightly decreased because annual demand decreased.

TABLE:10

RAW MATERIAL:

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YEAR

MAXIMUM LEVEL IN M/T

2006 2007 2008 2009 2010

2974 3341 3767 2863 3571

CHART:10

INTERPRETATION: The maximum levels were increased because the sales were increased.

TABLE:11

CYLINDER LINERS:

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YEAR 2006 2007 2008 2009 2010

MAXIMUM LEVEL 1415082 1719921 2311096 2021018 279968

CHART:11

INTERPRETATION: Due to increasing of annual demand the maximum level varied. In the year 2009, the maximum level decreases because the production was decreased due to low sales.

TABLE:12

RAW MATERIAL:

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YEAR 2006 2007 2008 2009 2010

AVERAGE LEVEL IN M/T 4742 5328.5 2016.5 1532.5 1911.5

CHART:12

INTERPRETATION: Average level for the Raw material was calculated by maximum and minimum levels were taking into account.

TABLE:13

CYLINDER LINERS:

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YEAR 2006 2007 2008 2009 2010

AVERAGE LEVEL 757485 920663 1237116 1081839 1166924

CHART:13

INTERPRETATION: NTERPRETATION: Generally Kusalava International Limited was maintaining these stock levels per annum. Stock was necessary to run the production. It was gradually decreasing

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CHAPTER-V FINDINGS & SUGGESTIONS

FINDINGS: FINDINGS: The Economic Order Quantity of Raw material in Metric Tones is high in the year

2008 it was 23.48. And it was low in the year 2009 it was 14. The total cost was low in

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the year 2006 and it was very high in the year 2009. EOQ was better in the year 2006.

Economic order quantity for cylinder liners in nos is high in the year 2008 it was

4808 and low in the year 2007 it was 2984 Inventory Turnover Ratio was very high in the year 2008. It was 7.44. It was

gradually decreasing. In the year 2010 it was 4.81. Because of increase in the average stock maintained in the company. Inventory Conversion Period increases from 2008 to 2010 that was 49 to 76 days.

Because of average stock maintained in the company. It was not good practice. The percentage of inventory over current assets increased from 25 in the year

2008 to 35 in the year 2010. The more importance was given to inventory in the current assets. Reorder level of Raw material was in the year 2006 it was 5040 Metric Tones.

And it was 6384 in the year 2008. That is gradually increasing. And also it was decreasing from 2008 to 2010. It was decreasing because the orders may be decreased. That means sales were decreasing.

For Cylinder liners to reorder level in the year 2006 it was 239712 numbers, it

was gradually increasing. It increased from 237312 to 3693120 numbers due to high rate of stock level should be carried out. Minimum level of Raw material in the year 2006 it was 4515 Metric Tones. It

was gradually decreasing. In the year 2010 it was 1638. Minimum level was decreasing because the sales were increasing. The demand was increasing to the raw material.

For Cylinder liners, in minimum level in the year 2006 it was 649272 numbers.

It was gradually increasing from 649272 to 1000220 numbers. So that the sales were increased and consumption was increased. Maximum level of Raw material in the year 2006, it was 2974 M/T. It was

increased to 3571 M/T in the year 2010 because of the sales was increasing.

11. For cylinder liners to maximum level in the year 2006 it was 1415082

numbers. Gradually the level was increased up to 2008. But in 2009 it slightly reduced.

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Even in 2010 it was increased due to the high requisition for the product.

12.Average level of raw material in the year 4742 M/T. It was increased to 5328

M/T in the year 2007. It was gradually decreased from 2007 to 2009. In the year 2010 it was 1911.5 M/T due to increasing of sales.

13 Average level for cylinder liners from 2006 to 2008; it was gradually increased

that is from 757485 to 1237116 numbers. Where as in the year 2009 it reduced 1081839. But in the year 2010, it increased to 1166924 numbers due to the high need of cylinder liners. SUGESTIONS: The Economic Order Quantity can be further increased by another 10% by

reducing the carrying cost. As the demand increasing for cylinder liners the Raw material Turn over Ratio

can further increased.

In the year 2010, Reorder level was 6048 M/T, this can be increased seeing the

more demand for the final product. The component of inventory in the Current Assets has been increasing every year

approximately 40% on the same line for the next year the share of inventory further increased by 50%. As a demand for Cylinder liners in other countries are also increasing, the two

levels of inventories that are minimum and maximum have to be increased. For Raw material it can be increased by 50%. Similarly for Cylinder liners also increased by 60%. year. More sophisticated techniques can be used in order too has more control over Inventory Conversion Period has increased from 70 to 76; there is a chance to

improve this period by bringing down approximately to 65 to 70 in the current financial

various items under ABC system.

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BIBLOGRAPHY

Financial management: Khan & Jain Financial Management: Prasanna Chandra Financial Management: I.M.PANDY Financial Management: R.K.Sharma & K.Gupta

Journals: Annual Audit Reports of Kusalava International Limited.

Web Sites: www.kusalava.com www.acma.com

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