SRI GURU TEGH BAHADUR

INSTITUTE OF MANAGEMENT AND

INFORMATION TECHNOLOGY
MINOR PROJECT

A STUDY ON INVENTORY MANAGEMENT

ON
MAHINDRA AND MAHINDRA
LIMITED AUTOMOTIVE SECTOR

BY—AVNEET SINGH

SUBMITTED BY – AVNEET SINGH SUBMITTED TO –DR. SUPREET K.

BBA- 4A
GURU GOBIND SINGH INDRAPRASTHA
UNIVERSITY

SESSION (2021-2024)
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 DECLARATION
I, hereby, declare that the project work entitled “STUDY ON INVENTORY
MANAGEMENT [MAHINDRA AND MAHINDRA]” submitted to GURU GOBIND
SINGH INDRAPRASTHA UNIVERSITY is a record of an original work done by me
under the guidance of DR.SUPREET KAUR, faculty member at Sri Guru Tegh
Bahadur Institute of Management and Information Technology.

…………………………………………..
Place: Delhi (Signature of the Scholar)
Date: Name of scholar:

AVNEET SINGH

Enrolment Number:
03790201721

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 CERTIFICATE
This is to certify that AVNEET SINGH, student of Sri Guru Tegh Bahadur Institute of
Management and Information Technology of course BBA (G) has completed project
work title “STUDY ON INVENTORY MANAGEMENT {MAHINDRA AND
MAHINDRA}”under my guidance and supervision. This work is genuine.

…………………………………………..
(Signature of project in charge)
DR. SUPREET KAUR

…………………………………………..
Place: Delhi (Signature of the Scholar)
Date: Name of scholar:

AVNEET SINGH

Enrolment Number:
03790201721

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 ACKNOWLEDGEMENT
I would like to take the opportunity to thank and express deep sense of gratitude towards my
mentor DR. SUPREET KAUR.I am greatly indebted to her for providing her valuable
guidance, advice, constructive suggestions, positive and supportive attitude and continuous
encouragement at all stages of the study, without which it would not have been possible to
complete the project.

…………………………………………..
Place: Delhi (Signature of the Scholar)
Date: Name of scholar:

AVNEET SINGH

Enrolment Number:
03790201721

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 CONTENTS

Page.
No

CHAPTER –1 : INTRODUCTION 1-4

CHAPTER – 2 : COMPANY PROFILE 5-19

CHAPTER – 3 : THEORATICAL PERSPECTIVE 20-30

CHAPTER – 4 : STORES DEPARTMENT 31-32

CHAPTER – 5 : TOOLS AND TECHNIQIUES OF 33-48

INVENTORY MANAGEMENT

CHAPTER – 6 : CONCLUSION AND

RECOMMENDATIONS 49-50

CHAPTER – 7 : BIBILIOGRAPHY 51-52

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 CHAPTER –1

INTRODUCTION

• MEANING AND NATURE OF

INVENTORY

• INVENTORY CONTROL

• OBJECTIVES OF INVENTORY

CONTROL

• NEED FOR INVENTORY MANAGEMENT

• OBJECTIVE OF THE STUDY

• METHODOLOGY

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

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

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

MEANING OF INVENTORY MANAGEMENT

Inventory management consists of maintaining for a given financial investment an

adequate of something in order to meet and accepted pattern of demand. Inventory
considers control over costs of inventory on one hand an handle the size of inventory
on other hand.

Controlling investments in inventories constitute crucial part in current assets.

An efficient inventory controlling system will decide,

What to purchase
When to purchase
How to purchase
Size of purchase

And from where to purchase (Suppliers)

The main purpose of inventory management is to ensure

1. Required quantity of availability of raw materials

2. Minimize the investments in inventories
3. Maintain reasonable stock levels not excess or not under stocks.

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INVENTORY CONTORL

Inventory control is the system devised an adopted for controlling investments in

inventory. It involves inventory planning and decision making with regard to the
quantity and time of purchase, fixation of stock levels, maintenance of stock records
and continuous stock – taking.

OBJECTIVES OF INVENTORY CONTROL

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

That twin objectives of inventory control are,

1. To maintain a balanced inventory.

2. To keep the amount invested in inventory as low as possible without
hampering either flow of the production or deliveries of finished goods.

• To avoid both under stocking and over stocking of inventory.

• To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centralized purchasing.
• To ensure continues supply of materials, spares and finished goods
so that production should not suffer and any time and customers
demand should also be met.
• To design proper structure for inventory management. A clear cut
accountability should be fixed at various levels of the organizations.
• To ensure right quality goods at reasonable prices. Suitable quality
standards will ensure proper quality of stocks. The price analysis, the
cost analysis will ensure paying of proper prices.
• To facilitate furnishing of data for short term and long term planning
and control of inventory.

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NEED FOR INVENTORY MANAGEMENT

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

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

OBJECTIVE OF THE STUDY

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

The objectives are :

1. To know about the Purchasing procedure of the inventories.
2. To study about classification and codification of inventories.
3. To analyze the records of stock levels.
4. To analyze about JIT and Two bin system of M&M Ltd.
5. To know about the profitability of M&M Ltd throw inventory management.

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METHODOLOGY

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

1. Primary data
2. Secondary data

Primary Data :

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

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

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SCOPE OF THE STUDY:

The topic titled “A STUDY ON INVENTORY MANAGEMENT is conducted

in Mahindra&Mahindra Ltd. The scope of the study is limited to inventory management
and period is limited to five financial years of the company. The analysis was
conducted from 2004-2005 to 2008-2009.The tools used for are ratio analysis. The
trend analysis is for sales and inventory is conducted. The study is based on the
inventory data available from financial statements and internal records of the company
and primary data collected through informal interview with the company officials.

LIMITATIONS:

▪ Since the study is based on the inventory management i.e. obtained from the
company’s finance and production department, the limitations of the inventory
management shall be equally applicable.

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

▪ The study is conducted with the data available and analysis was made
according to it.

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

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- 12 -
 COMPANY PROFILE

UNIT SCENARIO:

The MAHINDARA & MAHINDRA COMPANY is located 110 Kilometer

from the State capital of Hyderabad in AP at Zaheerabad it has an area of
350 hectors land including all facilities.

In July 1983 HYDERABAD ALLWYN LIMITED (HAL) A State Public

Sector undertaking of A.P. Government entered in to a technical and
financial assistance agreement with Nissan Motor Company (NMC)
Limited of Japan for manufacturing of new generation of light commercial
vehicles (LCVS) in India.

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

After that an intensive negotiation MAHINDRA & MAHINDRA LTD. The

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

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

HISTORY

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

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

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

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

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

BOARD OF DIRECTORS

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

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

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Directors :
Non Executive-

Mr. Keshub Mahindra (Chairman)

Mr. Deepak S Parekh

Mr. N.B. Godrej

Mr. M.M. Murugappa

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

Mr. Narayana Vaghu

Mr. A.S. Ganguly

Mr. R.K. Kulkarni

Mr. Anupam Puri

Executives :

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

Mr. Bharath Doshi (Executive Director)

Mr. Alan E Durante (Executive Director)

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

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 PRODUCT DETAILS

MAHINDRA & MAHINDRA has modern facility at

Zaheerabad, near Hyderabad where some of its
important products are :

1. Mahindra Cab King 576

2. Mahindra FJ 470 DS4 High Roof Mini Bus
3. Mahindra DI 3200
4. Mahindra FJ Mini Bus
5. Mahindra Tourister
6. Mahindra Cab King 576DI
7. Mahindra Champion
8. Mahindra Champion Alfa
9. Mahindra Champion DX
10. Mahindra Load King DI
11. Mahindra Load King Super
12. Mahidnra Martial 2000 Delux
13. Mahindra Martial DX Royal
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 DEPARTMENT OF FINANCE

MR. A KAMESHWAR RAO

DGM ZAHEERABAD / A/C.

MR. PATTHABHI RAMA

MR. N.R.R. SASTRI CHARYULU
MR. SAI GANESH IYER
MANAGER MANAGER – L7 MANAGER – L(COSTING)

MR. AMOL
DESHPANDE L7 (OP)

MR. SURSH SINGEKAR SMT. SITAMAHALAXMI

L 8 OPERATIONAL L8 OPERATIONAL

BAPI RAJU K.S.S. REDDY V.K. MOHAN V.V.P. SARTHY V.V.S.N. RAO V.R. RAO J.P. REDDY
W-7 W-7 W-7 W-7 W-7
W-7 W-6

RAGHAVENDRA
W-6
G.GOPAL J.S. MURTHY ASIT
W-6 W-6 W-6 K. NAGESH
W-6

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FUNCTIONAL PROFILE

The Mahindra & Mahindra Ltd., is headed by General Manager (Operations) who is
assisted by Deputy General Managers from product department, quality assurance,
finance department, PHRD Department, Supply Module Department, The General
Manager (Operations) is also assisted by Senior Managers from Service Department,
Administrative Department, Vehicle Engineering.

PLANT LAYOUT OF MAHINDRA AND MAHINDRA,

ZAHEERABAD.

STORES

ENGINE FRAME AXLE BODY

SHOP SHOP SHOP SHOP

VEHICLE TRIM PAINT

SHOP SHOP
ASSEMBLY SHOP

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

I. Direct Department.
II. Indirect Department.

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

• Production Planning & Control Department.

• Vehicle Engineering Department (VED).
• Paint Shop.

Indirect Departments :

The departments which are not directly involves in the production process and gives
more assistance come under this category. The core departments are as follows :

• Administrative Department.

• Finance Department.

• Personnel and HRD Department.

• Service Center.

• Material Control Department of ancillary development department.

• Vehicle Engineering Department.

• Industrial Engineering Department.

• Maintenance Stores Department.

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- 21 -
Introduction

Material Control
1) Definition of Material Control
2) Objectives of Material Control
3) Deference between Materials Control and Inventory Control
4) Material Purchasing and Purchasing Procedure.

INTRODUCTION

The Primary Objective of cost accounting is cost control. This is achieved by

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

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

MATERIAL CONTROL

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

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

• Related to Material Planning.

• Related to Material Sourcing.
• Related to Material Purchasing.
• Related to Stores and Material Handling.

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Definition of Material Control

The Term Material Control means “The regulation of the function of an

organization relating to the procurement, Storage and usage of materials in such a
way as to maintain an even flow of production without excessive investment in material
stock”

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

1. Procurement or Purchase Control

2. Storage or Stock or Inventory Control and
3. Issue or Usage or Consumption Control.

OBJECTIVES OF MATERIAL CONTROL :

The Twin Objectives of Material Control :

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

production.
b. Preventing excessive investment in material stock.

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

1. To effect purchases of materials of the right quantity consistent with the

standards prescribed in respect of the finished products.

2. To make available assured supply of materials so as to keep the cycle of

production going without any interruption.

3. To Procure materials on the most favorable terms with a due to effect

maximum economy in the cost of buying.

4. To ensure effective utilization of materials.

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

working capital.

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

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Difference between Materials Control and Inventory Control

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

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

ACTIVITY RELATED TO MATERIAL PLANNING

• Identification of Materials
• Quantity and Quality of Materials
• Classification and Codification of Materials

Every Enterprise needs inventory for smooth working activities. Inventory

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

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

A systemized inventory management will determine

a. What to purchase
b. When to purchase
c. How to purchase
d. Size of purchase and
e. From where to purchase (Vendors)
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MATERIAL PURCHASING AND PURCHASING PROCEDURE
Purchase of material is one of the important function of material management.
At times more than 50% of the total product cost is material.

Functions of Purchase Department

1. Deciding the items to be purchased based on demand.

2. Selection of sources of supply.
3. Collection the price information.
4. Placing the ordered.
5. Follow-up the ordered.
6. Checking the invoices.
7. Maintenance of purchase records.
8. Maintenance of vendors relations.

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

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

In Mahindra and Mahindra Centralized purchasing procedure is following to

purchase of materials.

• Centralized purchasing avoids duplications of efforts and working at

cross purpose from one plant to another.

• Centralized purchasing permits consolidation of order of materials

commonly used for two or more plants. The ultimately results in
greater buying power, favorable contracts and trade agreements.

• Easier to maintain the quality of purchased parts / items through

centralized testing and inspection. It is also possible to conduct
testing and inspection facilities.

• Centralized purchasing permits to avail facilities like quantity

discounts and cash discounts thus its helps to reduce cost.
• It is beneficial to vendor also in case the size of order constituted
major proportion of his total production capacity.
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PURCHASING ACTIVITIES OF INVENTORY IN MAHINDRA &
MAHINDRA LTD.,

SL.
PROCESS SUB ACTIVITY
NO.
1. MATERIAL PROCUREMENT Ordering
PROCESS Execution
Closing – SAP
2. TRANSPORT BILL PASSING Bill Entering
Bill Passing – SAP
3. VENDOR AIDED MATERIAL Material Transfer
RECEIVED AND DISPATCHED Document Entering – SAP
4. VENDOR AIDED Reconciliation – SAP
RECONCILIATION PROCESS Vendor Aid Material Transfer Debit
REJECTION
5. PRE-EN PROCESS Receiving Document
Security
Meetings and Closures
6. NON MOVING IDENTIFICATION Identification through Non moving EN
AND DISPOSAL finalized and disposal approve from finance
and dispatch
7. STATIONARY PURCHASING Identifying quotation comparison
information record and P.O.
8. MANAGEMENT INFORMATION Information gather compilation schedule
SYSTEM updation
9. LOGISTICS Material collection and dispatch

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

In further purchasing procedure process, i.e., for next month material

management department look after previous month performance of vendors the
performance like, time of delivery, quantity discounts, term of payment, mode of
delivery, quantity of materials and good will of the suppliers in the market.

On the basis of these factors vendors list is prepared

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

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 SL.
NAME OF VENDOR PLACE
NO.
1. M.G. AUTOMATIVES PVT. LTD. ZAHEERABAD

2. MUNGI BROTHERS ZAHEERABAD

3. ALF ENGINEERING COMPANY ZAHEERABAD

4. TATA IRON AND STEEL COMPANY MUMBAI

5. SURENDERA FORGINGS PVT. LTD. MUMBAI

6. MAHINDRA INTER TRADE LTD. MUMBAI

7. GKN DRIVE LINE (INDIA) LTD. DELHI

8. M.R.F. LTD. CHENNAI

9. BREAKS INDIA LTD. CHENNAI

10. LUCAS TVS LTD. CHENNAI

11. RANE (MADRAS) LTD. CHENNAI

12. WHEELS INDIA LTD. PUNE DIVISION. PUNE

13 TATA TOYO RADIOTORS LTD. PUNE

14. SPICER INDIA LTD. PUNE

15. FAIR FIELD ATLAS LTD. KOLHAPUR

16. APPOLLO TYRES WAJODIA DIST.

17. GREAVES COTTON LTD. RANIPET

18. GURUNANAK AUTO ENTERPRICE LTD. GORAYA

19. BHUSHAN STEEL AND STRIPS LTD. SAHIBABAD

20. MAKE SPIRING PVT. LTD. THANE.

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

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

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

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- 29 -
STORES DEPARTMENT

Efficient store-keeping and inventory control in dispensable to the control of

material cost. Goods are received into the stores after inspection and they are held
and issued to production as and when required. The store department rendering
service departments and the accounts departments.

FUNCTIONS OF THE STORE KEEPER

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

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

2. Store the material in the allotted places.

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

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

5. Maintain the store department neat and tidy.

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

7. Issue materials only against authorised requisitions.

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

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

10. Initiate purchase requisitions for the replenishment of stocks.

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

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TOOLS AND TECHNIQUES OF INVENTORY CONTROLS

1. CLASSIFICATION OF INVENTORY.
2. CODIFICATION OF INVENTORY.
3. JIT ANALYSIS.
4. TWO BIN SYSTEM.
5. KANBAN
6. MILK RUN CONCEPT
7. DETERMINATION OF STOCK LEVELS
8. INVENTORY TURNOVER RATIOS.

CLASSIFICATION OF INVENTORY.

Classification of inventory is of two kinds :

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

MADE TO STOCK

ABC Classification

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

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

ABC represents The value of materials

XYZ represents The consumption of materials

The table explanation

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

10 70 A X

20 20 B Y

70 10 C Z

PURCHASING PROCEDURE OF ABC ITEMS

A ITEMS – 1 TO 3 DAYS
B ITEMS – 2 TO 5 DAYS
C ITEMS – 7 DAYS OR WEEKLY

XYZ CLASSIFICATIONS

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

Y – (Repeater Model) :- It is used in the manufacturing of vehicles.
Z – (Stranger Model) :- Which are consumed less.

AX – ITEMS – Daily Consumption

AY – ITEMS – Time taken for 2 to 3 days for consumption
AZ – ITEMS – By taking as per order.
- 32 -
 ABC analysis helps to concentrate more efforts on A since greatest monetary
advantages will come by controlling these items. An attention should be paid in
estimation requirements, purchasing, maintaining safety stocks and properly storing of
A category materials. These items are kept under a constant review so that a
substantial material cost may be controlled. The control of C items may be relaxed
and these stocks may be purchased for the year. A little more attention should be
given towards B category items and their purchased should be understood quarterly of
half yearly intervals.

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

proper stock level according to the flow of the day to day inventory in the organization.
By giving course to the ABC classified inventory it is easy to identify the inventory from
the stores department. It helps to save the time to choose from the stores department,
in selection of the vendors, material holding cost, estimation in expenditure of working
capital, determining in inventory levels and so on…….

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

In Mahindra & Mahindra Limited the codification of materials done by allotting

the number and alphabets.

Numbering system for M & M Ltd.,

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

X XX XXXX X
First Group Second Group Third Group Fourth Group

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

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

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

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

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

08 02 BA 0690N

Where :

08 is Clutch system
02 is Sub-System – (Sub System)
B is External Controls – Mechanical
A is General
069 is Running Serial Number
0 is M & M Design
N is Colour Code

JIT – JUST IN TIME INVENTORY CONTROL

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

manner that delivery immediately precedes the demand of use. This will ensure that
stocks are as low as possible. JIT purchasing is implemented by developing closer
relationship with suppliers so that company and suppliers work together operatively.
In JIT purchasing, arrangement is made with supplier for more frequent deliveries of
smaller quantities of materials so that each delivery in just sufficient to meet immediate
production requirements. JIT systems reduce the investment in raw materials and
work in progress stocks.

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 JIT purchasing include savings in factory space, large quantity discount and
reduced paper work arising from issuing blanket long term orders to fewer suppliers
instead of purchase orders.

Direct Online (DOL) method is following in JIT system. In JIT A Class items are
purchasing and the time between the purchase of these items are 1 to 2 days.

MILK RUN CONCEPT

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

Milk Run Concept is a day-to-day purchasing concept. Here the buyer will
purchase the material according the production, which is for the next one day.

The buyer will first know the safety control stock and then he tells to the
suppliers the estimated trigger value. In milk run concept only quality certified stock
will be delivered the purchaser should estimated the lead time and it is compulsory so
as to have the control over the lead time. It is direct online system there will be
inspection so as to save time and inventory handling cost.

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

Advantages :-

• Economical transportable lot (minimum transportation cost per piece)

• No inventory carrying cost at plant and at warehouse.
• It is direct online system (DOL)
• Quality certified stock will be delivered and so no inspection is
required.

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TWO BIN SYSTEM

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

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

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

KANBAN CARD MODEL (BIN CARD)

KAN BAN TYPE KAN BAN QTY.

PART NO :-

DESCRIPTION :-

STORAGE LOCATION :-

SCHEDULE TO RECEIPT TIME IN DAYS BUYER

KAN BAN CARD NO. :-

M & M MAS, ZHB - VSM

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

SL. I-BIN QUANTITY

NO. PART DISCRIPTION PART NO.
IN UNITS
1 RUBBER RADIATOR A 97214002 250
2 RUB CAB MTG 95154T8001 700
3 CLAMP 36458T8008 300
4 BUSH SPHERICAL 3446261000 1500
5 WASHER PLAIN 3441461500 5000
6 CLIP 270422002 300
7 P.R. HOLDER BEARING 3051466300 2000
8 SEAL OIL FR COVER 3211386401 3000
9 BALL STEEL 3272014600 1000
10 SPRING IDLER FORK 3238486400 2000
11 COVER DUST 3238286401 250
12 BALL STEEL 3272036900 1000
13 PIN RETAINER 3280C0400 2500
14 PIN INTER LOCK 3281586400 1000
15 CHECK BALL 3282926700 20000
16 PIN SNAP 0092310610 5000
17 RING SNAP E TYPE 0092251210 2500
18 RING SNAP E 007540500P 5000
19 CLAMP 0062151 2500
20 CLAMP 0062141 7500
21 GASKET EXHAUST 0903BA0191N 1000
22 O RING 005110010P 250
23 PINDART EL 046510818P 3000
24 SILENCER A97743003 180
25 SILENCER A97743004 210
26 VINPLATE A93969006 5500
27 SPACER A95572002 497
28 MAHINDRA LOGO A93769004 300
29 ASSY BATTERY CABLE A97241008 861
30 CLIP 24210T8000 600
31 CLIP COMMON TO 24045T8000 300
32 RUBBER MTG 21491T8000 600
33 RUBBER EXT MTGA 2013685001 800
34 CABLE EARTH 24085T9001 200
35 PIVOT W/D LEVER 211200402T 1000
36 RUBBER EXT MTGB 20137B5001 800
37 CLAMP 2404558011 300
38 STAY MUD GUARD A93781003 150
39 DUST COVER A93361005 4000
40 GASTEK BREAK 4628375121 3000
41 O RING 1734218000 250
42 INSUL BODY MTG 2ND U 95520T8000 400
43 ASSIT GRIP ASSY S93739001 300
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DETERMINATION OF STOCK LEVELS
Carrying of to much and too little of inventories is determinate to the firm. If the
inventory level is too little, the firm will face frequent stock – outs involving heavy
ordering cost and if the inventory level of inventory where costs are the minimum and
at the same time their ID.No.Stock-out, which may result in loss of sale or stoppage of
production. Various stock levels are discussed below.

MINIMUM STOCK LEVEL

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

a. Average rate of consumption.

b. Lead time.
Normal usage Average delivery
Minimum Stock Level = Reordering level P
- er period X time

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

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

a. Abnormal usage
b. Abnormal delay in supply

Reorder level = Maximum consumption X Maximum period required

during the period for delivery

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

Maximum level = Reorder Level + Reordering quantity – Minimum consumption

AVERAGE STOCK LEVEL :

The average stock level is calculated as such :

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

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

ESTIMATION OF STOCK LEVELS :

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

Reordering Quantity - 2500 units

Reordering Period - 4 – 5 weeks

Weekly usage :-
Maximum usage - 900 units
Normal usage - 700 units
Minimum usage - 500 units

Reordering Level = Maximum consumption X Maximum Reordering Period

= 900 X 5 = 4500 units.

Ex :- Consider “Load King” for calculation purpose.

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 Calculated of the load king vehicle as 500 units.

Normal Daily consumption = 700 units

Normal Reorder period = 4.5 weeks
Reorder level = 4500 units
Minimum usage = 500 units
Minimum Reorder period = 4 weeks
Maximum Reorder period = 5 weeks

MINIMUM STOCK LEVEL

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

= 4500 – (700 X 4.5)
= 4500 – 3150
= 1350 Units

MAXIMUM STOCK LEVEL

= Reorder Level + Reorder Quantity – (Minimum consumption X

Minimum Reorder Period)
= 4500 + 2500 – (500 X 4)
= 7000 – 2000
= 5000 Units

AVERAGE STOCK LEVEL

= Minimum stock + ½ of Reordering Quantity.

= 500 + (½ X 2500)
= 500 + 1250
= 1750 Units

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Minimum Stock Level = 1350 Units
Average Stock Level = 1750 Units
Maximum Stock Level = 5000 Units

INVENTORY TURN OVER RATIO

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

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

“Inventory or Stock turnover is measured in terms of the ratio of the value of

materials consumed to the average inventory during the period”. The ratio indicates
the number of time the 0a1verag20e02inven2t0o0r3y is c2o00n4sume2d00a
5 nd re
20p0l6enished by dividing
number of days for which the average inventory is held can be ascertained.

Comparing the number of days in the case of two different materials, it is

possible to known which is fast moving and which slow on that basis attempt may be
made to reduce the amount of capital locked up and prevent over stocking of slow
moving items.

Average Inventory = Opening Stock + Closing Stock

2

Inventory turnover ratio = Material consumed

Average Inventory

Inventory turnover in number of days = Number of days in a year

Inventory turnover ratio

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SUGGESTIONS:

➢ Always in stock to keep production process continuous.

➢ For smooth production should provide adequate supply of items. This inturn will
lead to timely delivery of goods to customers.

➢ They should always make verification of inventory holding cost for the better
control of inventory in the organization and to increase the profitability.

➢ They should maintain the safety stock, so that they can use it when there is
need of the inventory.

➢ The total cost of inventory should be compared with the total benefits arising out
of inventory for determining its optimum level.

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CONCLUSIONS

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

clear that the inventory classification of A items are maintain for 1 – 3 days, as a result
it reduce investment in raw material, reducing the lead time and also the large quantity
discount because the stock are kept for 1 – 3 days.

2. Class A & B items are consider under the just in time philosophy as the procurement
time has been reduced up to greater extent by the proper co-ordination of buyer and
supplier.

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

increased from 5.38 to 7.895% this position indicates that the stocks are fast moving
and get converted into sales quickly in M & M Ltd.,

4. Finally we conclude that MAHINDRA AND MAHINDRA plant the inventory system is
very good with high Japanese techniques.

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THE FOLLOWING LINKS ARE USED FOR MAKING THIS PROJECT –

1. WWW.WIKIPEDIA.COM/HTTPS

2. WWW.M&M.COM

3. www.google.co.in

MAGAZINES REFFERED

THE HINDU

THE ECONOMIC TIMES

THE TIMES OF INDIA

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