CASE STUDY Assignment on

Magi Corporation

Submitted to: D. Ghosh

Submitted by: Moirangthem Pauly

Roll no- 59

Department of Business Administration,

Assam University
Magi Corporation
Magi Corporation concerns with the maintenance of agricultural tractors. They also
supply spare parts of tractor. The main storehouse of Magi Corporation was in Bangalore
with eight branches in different districts of Karnataka. They maintain inventories of spare
parts for both indigenous and imported models. Some of the imported models are Zetors,
Utos, Byclarus, Ursus and Russian tractors. The indigenous tractors are Massey Fergusion,
Escort and International Harvester.

The spare parts are purchased by the Central store and distributed to the branches.
However the sales are made both at the central store and the branches

Customer

Fig: Operating System of Magi Corporation.

Customer

During the year April, 1990-March, 1991 the division made sales of Rs. 53.9 lakhs,
Branch 1
out of which 35.93 lakhs was from the central stores and the remaining 17.97 lakhs from the
Indian
branches.
SuppliersFrom the inventory valuation it was seen that as on March 31, 1990, the central
Customer
Branch 2

Foreign Central Customer

Suppliers Stores
Other State Branch 3
Agros
store had an inventory of worth 46.82 lakhs and the inventory in the four major branches
was 12.35 lakhs. The total stocks of spares the entire division held was worth 59.17 lakhs.

In 1990 Magi Corporation diversified its field of business and a section dealing in
veterinary drugs was started in the central stores complex, Bangalore. In 1991 Jayadev took
over as manager of the spare parts division. He observed that the division was carrying far
too high level of inventory. This was mainly because adopting of old and rule of thumb
method of stock control. Jayadev feel that there is urgent need of introducing modern
scientific method of inventory control for reducing stocking costs. He felt that good
techniques of forecasting the demand of spares have also to be installed to promote more
effective service to the agricultural tractor users. He also felt that the best control of the
system could be obtain through computerization as the number of items were fast
increasing and the market was rapidly expanding.

A preliminary study was instituted by the organization to determine the feasibility of

computerizing its operations. The study gave an overview of the system, and also the
relevant cost that would be incurred in case of Magi decided to computerize its spare parts
division’s operation. The expenses estimated were a onetime charge of Rs. 28,000, quarterly
charges of Rs. 10,000, monthly charges of Rs. 5,140 and annual charges of Rs. 2,400. These
included the cost of data preparation, data entry into floppy discs and stationary.

Existing System:

The present organization of the central stores is shown below:

Manager
 Purchase & Sales Engineer

(Development, imports and Sales Analysis)

Stores Assistant Purchase Assistant

(Spares) (Iron and steel hand tools & miscellaneous)

Sales counter Outward section Store keeper Stores accountant

Fig: Present organization chart

At each of the branches there is a sales assistant and one helper. In case of branches with
more transactions two numbers of helper will be there.

Inventory control procedures

The organization keeps stores ledgers and bin cards at the central stores. The store
keeper, while issuing materials, enter the quantity issued in the bin cards and so, the day to
day status of the inventory is known from these bin cards. Copies of documents like cash
bills, stock transfer notes etc. are used by the stores accounting group for the
documentation in the ledgers.

The bin cards are used to initiate purchases. As soon as the stock of an item reaches
a certain level, the stores attender intimates the stores assistance for necessary action. The
level is fixed based on the experience and subjective judgment of the store keeper. It is not
the practice in the division to prescribed safety stocks for the items.

After a few months of taking over charge of the division, Jayadev called in a
consultant to suggest

- Inventory control procedures and

- The feasibility of computerization of the operations.

Mohan studied the operations of the spare parts division and discussed with the
manager, sales engineer, accountant and store keepers. After that he recommended in
three areas- procedural improvement, inventory control and forecasting and
computerization. For stricter control of the operation he recommended new organization
structure.

To develop selective inventory control, Mohan made a list of all items categorized
the items as A, B and C category. He suggested fixed interval reorder system for A and B
items. For C items a two-bin policy was suggested. In order to purchase planning and stock
planning Mohan suggested two approaches, one based on the number of tractors covered
by Magi, and the second based on the seasonal variation of the sales.

Feasibility of Computerization:
According to Mohan since on an average there were 200 items in transaction every
day, much of the manual work could be replaced by the data processing and the increasing
number of employees could be avoided. He made a system flow chart showing various
inputs and outputs.
Question answers:

1. Yes, I am agree with Mohan that he recommended fixed interval re-

order system for A and B category of items, because it is less expensive.
2. Yes
3. Yes I am agree with the view of manager Dev regarding policies. He
observed that the corporation is carrying high level of inventory because
of old and outdated technology. So he suggested computerization of its
operations.
4.