I.

CHAPTER
Introduction

INTRODUCTION

Every enterprise needs inventory for smooth running of activities. It serves, as a

link between production and distribution. For every process there is, 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 unforeseen fluctuations in demand and supply of
goods also necessitate the need for inventory. It provides a cushion for future price
fluctuations.
The investment in inventories constitutes the most significant part of current
assets/working capital in most of the undertakings. 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.
The investment in inventory is very high in most of the undertakings engaged in
manufacturing, wholesale and retail trade. In India, a study of 29 major industries has
revealed that the average cost of materials is 65paise and the cost of labor is 10paise and
overheads is 15paise of a rupee, 10%is profit. It is necessary for every management to
give proper attention to inventory management. A proper planning of purchasing,
handling, storing and accounting should form a part of inventory management.
An efficient system of inventory will determine,
What to purchase
How to purchase

 From where to purchase

Where to store etc.,

There are conflicting interests of different departmental heads over the issue of inventory.
The finance manager will try to invest less in inventory because to him it is an idle
investment, where as production manager will emphasis to acquire more inventory as he
does not want any interruption in production due to shortage of inventory. The purpose of
inventory management is to keep the stocks in such a neither way that there is overstocking nor under-stocking. The over-stocking will mean a reduction of liquidity and
starving of other production processes whereas under-stocking, on other hand, will result
in stoppage of work. The investments in inventory should be kept in reasonable limits.

MEANING AND NATURE OF INVENTORY

There are different meanings of inventory in different languages. In accounting
language it may mean stocks of finished goods only. In a manufacturing concern, it may
include raw materials; work in process and stores, etc., to understand the exact meaning
of the work inventory

Inventory may include the following things:

1. RAW MATERIALS:
Raw materials 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 replacing the supplies.
The factors like the availability of raw materials and government regulations, etc., too
affect the stock of raw materials.

2.

WORK-IN-PROGRESS:
The work-in-progress is that stage of stocks, which are in between raw materials

and finished goods. The raw materials enter the process of manufacturing but they are yet
to attain a final shape of finished goods. The quantum of work-in-progress depends upon
the time taken in the manufacturing process. The greater the time taken in manufacturing,
the more will be the amount of work-in-progress.

3. CONSUMABLES:
These are the materials, which are needed to smoothen the process of production.
These materials do not enter directly into production but they act as catalysts.
Consumables may be classified according to their consumption and criticality. Generally,
consumables stores do not create any supply problem and form 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 the cost.

4. FINISHED GOODS:
These are goods, which are ready for the 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 the customers. In some concerns the production is
under taken on order basis. In these concerns there will not be a need for finished goods
inventory. The need for finished goods inventory will be more when production is
undertaken in general without waiting for specific orders.

5. SPARES:
Spares also form a part of inventory. The consumption pattern of raw materials,
consumables, finished goods are different from that of spares. The stocking policies of

spares are different 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 positions for further
use. All decisions about spares are based on the financial cost of inventory on such spares
and the cost that may arise due to their non-availability

PURPOSE/BENEFITS OF HOLDING INVENTORY

Although holding inventories involves blocking of firms funds and cost of
storage and handling, every business enterprise has to maintain a 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 orders. It will mean loss of time and delays in execution of orders, which
sometimes may cause loss of customers and business. A firm also needs to maintain
inventories to reduce ordering cost and avail quality discounts, etc.
Generally there are three main purposes or motives of holding inventories.
The transaction motive, which facilitates continuous production and timely
execution of sales orders.
The precautionary motive, which necessitates the holding of inventories for
meeting the unpredictable changes in demand and supplies of materials.
The speculative motive which induces to keep inventories for taking advantage of
price fluctuations, saving in re-ordering costs and quantity discounts, etc.,

RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firms funds and incurrence of capital
and other costs. It also exposes the firm to certain risks. The various costs and risks
involved in holding inventories are as below:

1. CAPITAL COSTS:
Maintaining of inventories results in blocking of the firms financial
resources. The firms have, therefore, to arrange for additional funds to meet
the costs of inventories. The funds may be arranged from, own resources or
from outsiders. But, in both cases, the firm incurs a cost. In the former case,
there is opportunity cost of investment while in the later case, the firm has to
pay interest to the outsiders.

2. STORAGE AND HANDLING COSTS:

Holding of inventories also involves cost on storage as well as handling of
materials. The storage costs include the rental of the go down, insurance
charges, etc.

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 increased market supplies,
competition or general depression in the market.

 RISK OF OBSOLESCENCE:
The inventories may become obsolete due to improved

technology, changes

in requirements, change in customers tastes etc.

MATERIAL CONTROL
In most of the manufacturing concerns. The cost of raw materials represents a
major part of the total cost of production. Hence proper control over material is necessary
from the time the order is placed with the suppliers till they are actually consumed. An
efficient system of material control will lead to a significant reduction in production cost.
Material control may be defined as the systematic control over the procurement,
storage and usage of materials so as to maintain an even flow of materials and avoiding at
the same time excessive investment in inventories. Material control covers three stages
namely

Purchase of material
Storing of material
Issue of material

OBJECTIVES:
The objectives of material controls as follows
1. To ensure regular and uninterrupted supply of materials i.e., to make materials
available as and when they are needed.
2. To keep investment in stock at a reasonable levels, so that there is no loss of
interest on capital.
3. To purchase the materials at a reasonable price without sacrificing the quality of
such materials.
4. To avoid abnormal wastage by exercising direct control.
5. To avoid the risk of spoilage and obsolescence of the materials by fixing the
maximum stock level.
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IMPORTANCE OF MATERIAL MANAGEMENT

For any manufacturing organization materials, supplies, equipments are of
primary importance. The reasons are:1) Nothing can be produced with out materials supplies, or equipment
2) Materials constitute major part of total cost of products. This varies depending up
on type of product.

3) Because materials from major part of total cost these offer a very good scope for
reduction of total cost. A small percent material cost can result in large percent
increase in profitability.
4) End product quality a part from other factors largely depends on quality of input
materials.
5) Any interruption or shortage in supply of materials when needed by the
production department in many situations can result in complete stoppage of
production.
6) Because of growing concern for pollution same contribution has to be materials
management by finding substitutes which are less polluting or less damaging.
7) In the long term welfare and interest of the mankind the natural resources (most of
the materials ultimately came from one or the other natural resources) need to be
conserved and regenerated along with planned usage.

Right material.
Right quality.
Right quantity.
Right time.
Right price.
Low pay rolls costs.
Proper records.

ISSUE OF MATERIAL MANAGEMENT:

As per major activity groups involved in material management in any manufacturing
organization
1 Issue related to materials planning
2 Issues related to purchase
3 Issues related to stores or inventory
4 Issues related to material handling & display
9

1. ISSUE RELATED TO MATERIALS PLANNING:Materials identification.

Standardization
Make of buy
Coding & classification
Quality specification:

1. By providing samples or proto type

2. By providing manufacturing operation specification
3. By brand or trade name
4. By specifying well accepted market grades
5. By specifying testing procedures and relevant standards
6. By specifying / providing engineering drawing / blue prints

2. ISSUE RELATING TO PURCHASING:

1. CENTRALISED VS DECENTRALALISED PURCHASING:

This issue is comparatively more important & relevant to large corporations

operating multiple plants may or may not be located at different places. For a single place
organization decentralization might be feasible on a very limited scale.
A) favorable price and items can be negotiated because of large volume purchase
B) specialized vendors/ancillaries can be encouraged to take up manufacture &
supply of items/components of required & specified qualities
C) administration and control is comparatively more easy & efficient

10

D) number of personnel required is comparatively less resulting in to reduced

overhead cost of purchasing
E) paper work record keeping is consolidated possible to developing uniform
procedures and policies
F) Easier to maintain the quality of purchased parts/items through centralized
testing and inspection. It is also possible to conduct testing and inspection
facilities
G) It is beneficial to the vendor also in case the size of order constitutes major
proportion of his total production capacity

3. SINGLE SOURCE VS MULTIPLE SOURCE:

The purchase dept can decide to choose and depend on a single source for each of
same selected items in the extreme case the department can decide to use single source
for each of the item

A) for small total annual requirement of an item multiple sources tend to increase
clerical and other expenses

B) due to bulk purchases from single source it becomes possible to avail of discounts
of prices or frights or other services

C) suppliers tries to co-operate update & improve his services because of long term
relation

D) No of personnel required is comparatively less, resulting in to reduced overhead

cost of purchasing.

E) Paper work record keeping in consolidated possible to develop uniform

procedures and policies.

11

F) Easier to maintain the quality of purchased parts/ Items though centralized testing
and inspection. It is also possible to conduct testing and inspection at the vendors
facilities.

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

4. VENDOR / ANCILLARY DEVELOPMENT: This is same what similar to single/multiple supplier decision and also an out
come of make/buy decision. When total annual requirement is large and item is to be
brought from the market, then it is worth it to encourage ancillaries to take-up production
and supply of the item to a par cent company.

Providing item design/drawings

Providing technology for production
Helping in arrangement of finance
Helping by loading of its technical persons
Extending credit facilities
Extending quality control/testing facilities
Indirectly/directly helping in getting raw materials.
4. SIZE AND TIMING OF PURCHASE ORDERS: This is an integrated issue. Stores and inventory, production schedule, suppliers
capability time lag, reliability cost of holding inventory and cost of placing orders, etc. all
have an important bearing an how much to order and when to order

12

Relative importance of material or an item to the organization is also an important

issue since all items need not be considered equally for inventory management and
control.
5. A B C ANALYSIS:A class items are subjected to highest level of control supervision and
management.
B class items are subjected to medium level of control supervision and
management
C class items usually are not subjected to elaborate, control/management since
the cost of efforts is not worth it.
For A & B class items precise methodical models for determination of EOQ
frequency of purchase; safety stock/buffer stock level etc, can be used.

6. H.M.L CLASSIFICATION:High medium and low classification is done on the basic of important of
price/unit unlike ABC. Where total consumption value was considered it is for the
management to decide beyond which level of price/unit, the items would be classified as
H M & L. H classified items are required to be subjected to highest level of control
supervision and management the general guidelines are accordingly devised by the
management in respect to each of the classification.
7. VED CLASSIFICATION:-

13

The classification i.e. vital, essential, desirable, is done on the basis of importance
of an item to the production process. Those which are highly important and whose nonavailable, may renders the stoppage of the production are classified as V, where as
those because of which if not available the production may be affected or hampered are
classified as E and others classified as D in this classification the opinion of the of
technical people in the production process plays very important role one can formulate a
matrix considering ABC and VED analysis.
8. SED-CLASSIFICATION:Scarce difficult and easy classification is with respect to their availability in the
market scarce items are those which are scarce, either important or restricted. Or rationed
Items, usually in short supply and not available uniformly throughout the year. D items
ate those which are available in the local market. E items are those which are easily
available in the local market as and when needed.

9. FSN-CLASSIFICATION:The fast slow non-moving classification is based on rate of movement of items for
the store the item lapsed since last issue from the stores becomes one of the indicators to
be used for this classification the fast moving items F need to be reviewed frequently for
placing the purchase order. Where as non moving N items need to be received for
disposal consideration.
All the classifications help in identifies more important items to be taken
up for close supervision and management by materials management on
selective bases.
14

ISSUES RELATING TO STORAGE AND MATERIAL HANDILING:How much inventory of each item is to be maintained? This is the result of trade
off between keeping very high inventory resulting in to high inventory holding costs vs.
keeping very low inventory with high risk of stock out. A related requisition is when to
order and how much to order? What should be the level of reorder point and safety stock
the models relating

LOCATION AND LAYOUT OF STORAGE: Location of store should be convenient from point of view point of view of receipt
and inspection of material and also from the point of view of easy accessibility to internal
users it also depends on the type of items handle e.g.:- heavy material requiting rail head
etc.
Safety from theft and pilferage
Danger etc,
Easy and safe storage
Minimizing unnecessary handling with in the stores
Efficient use of space

OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives are operational and financial. The operational objectives mean that
the materials and spares should be available in sufficient quantity so that the work is not
disrupted for want of inventory. The financial objectives means that investments in
inventories should not remain idle and minimum capital should be locked in it.
The following are the objectives of inventory management:

15

 To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any time and the customers demand should also
be met.
To maintain investments in inventories at the optimum level as required by the
operational and sales activities.
To avoid both under-stocking and over-stocking of inventory.
To keep materials cost under control so that they contribute in reducing cost of
production and overall costs.
To eliminate duplication in ordering or replenishing stocks. This is possible with
the help of centralized purchasing.
To minimize losses through deterioration, pilferage, wastages and damages.
To design proper structure for inventory management. A clear-cut accountability
should be fixed at various levels of the organization.
To ensure perpetual inventory control so that materials shown in stock ledgers
should be actually lying in the stores.
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.

OBJECTIVES OF THE STUDY

To analyze the stock levels like reordering level, minimum stock level, maximum
stock level, and inventory control method.
To analyze the various costs involved in the inventory management.

16

 To evaluate the process of supply chain management.

To analyze whether JIT (just in time) system can be implemented or not.
To give suggestions relating to efficient utilization of inventories in Mahindra &
Mahindra.

17

RESEARCH METHODOLOGY
A research process consists of stages or steps that guide the project from its conception
through the final analysis, recommendations and ultimate actions. The research process
provides a systematic, planned approach to the research project and ensures that all
aspects of the research project are consistent with each other.
RESEARCH PROCESS
The research process has four distinct yet interrelated steps for research analysis
It has a logical and hierarchical ordering:
*

Determination of information research problem.

Development of appropriate research design.

Execution of research design.

Communication of results.

Each step is viewed as a separate process that includes a combination of task , step and
specific procedure. The steps undertake are logical, objective, systematic, reliable, valid,
impersonal and ongoing.

DATA COLLECTION
Primary Data collection took place with the help of filling of questionnaires. The
questionnaire method has come to the more widely used and economical means of data
collection. The common factor in all varieties of the questionnaire method is this reliance
on verbal responses to questions, written or oral. I found it essential to make sure the
questionnaire was easy to read and understand to all spectrums of people in the sample. It
was also important as researcher to respect the samples time and energy hence the
questionnaire was designed in such a way, that its administration would not exceed 4-5
minutes.

18

So, in this study the information furnished from secondary source for three years i.e20102011, 2011-2012, 2012-2013,2013-2014,2014-2015.

Secondary source:
The secondary data has been collected from
inventory reports
annual reports
magazines
newspapers
books
Internet.

19

LIMITATIONS:
The time confined for the study is very limited which is not sufficient to
make a comprehensive study.
The complete data cant be obtained as it was confidential and was not
revealed to outsiders.

20

II. CHAPTER
Industry
Profile &
Company
Profile

21

INDUSTRY PROFILE
UNIT SCENARIO:
The MAHINDRA & MAHINDRA plant is located at 108 kilometers from the state
capital of 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 agreement with Nissan
Motor Company (NMC) limited of Japan for manufacturing new generation of light
commercial vehicles (LCVs) in India. The scope of transfer stocks of imported kits
procured at favorable rates during the year 1962 vehicles was sold. Although company
achieved 60% localization in its products, yet the raising value of yen continued to
adversely affect its financial crisis and both. The financial corporation and industrial
development corporation were facing massive cuts in government findings. Therefore, in
order to cover the closing down of units, the state government indifference to the state
industrial policy decided to sell Allywn Nissan Ltd (ANL) to capable of business houses,
in the case preferably and established automobile company. After that an intensive
negotiation MAHINDRA & MAHINDRA LTD; the countrys leading manufacturing of
jeeps and tractors entered into the memorandum of understanding with HAL on 10 th June
1988 and agreed to acquire 26% of share capital in ANL and there after took control of
the companys management with the transferor of shares and management. The joint
venture agreement was entered into 7th November 1988 by M & M with NMC. The name
of the company was changed to MAHINDRA ALLWYN NISSAN LTD.M & M finally
took entire control of the operation of the plant on 1992.

PICK UP RANGE:
Mahindra utility
Mahindra pick up
Mahindra NC 640 DP
Mahindra pick up CBC

22

MAXX RANGE:
Mahindra Maxx
Mahindra Maxx LX

CL RANGE:
Mahindra MM 540/550 DP
Mahindra MM 540/550 XDB
Mahindra MM 540 DP
Mahindra MM ISZ-petrol soft-top

COMMANDER RANGE:
Mahindra commander 650 DI
Mahindra commander 750 ST.

HARD TOP RANGE:

Mahindra economy
Mahindra Marshal
Mahindra MM775 XDB
Mahindra three and five door hard top
Mahindra Marshal 2000 Deluxe
Mahindra marshal DX Royal

ALTERNATIVE FUEL RANGE:

23

 Mahindra CNG- three door

Mahindra Bijlee
Mahindra FJ CNG mini bus.

ARMY RANGE:
Mahindra rakshak(Bullet-proof vehicle)
Mahindra MM550 XD

THREE WHEELER RANGERS:

Mahindra champion DX
Mahindra champion

BUSINESS:
The main business of MAHINDRA & MAHINDRA limited is to manufacture the
utility vehicles and light commercial vehicles and tractor to market these vehicles
for customers. The mahindra group is divided into 6 sectors and these are the
strategic core business units.
Automotive sector
Farm equipment
Automotive component sector
Trade and finance sector
Infra structure development sector

24

 Telecom software exports sector.

25

COMPONY PROFILE

Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2.5
billion Mahindra Group, which has a significant presence in key sectors of the Indian
economy. A consistently high performer, M&M is one of the most respected companies in
the country.
Set up in 1945 to make general-purpose utility vehicles for the Indian market, M&M
soon branched out into manufacturing agricultural tractors and light commercial vehicles
(LCVs). The company later expanded its operations from automobiles and tractors to
secure a significant presence in many more important sectors.
The Company has, over the years, transformed itself into a Group that caters to the Indian
and overseas markets with a presence in vehicles, farm equipment, information
technology, trade and finance related services, and infrastructure development.
M&M has two main operating divisions:
1. The Automotive Division manufactures utility vehicles, light commercial
vehicles and three wheelers.
2. The Tractor (Farm Equipment) Division makes agricultural tractors and
implements that are used in conjunction with tractors, and has also ventured into
manufacturing of industrial engines. The Tractor Division has won the coveted
Deming Application Prize 2003, making it the only tractor manufacturing
company in the world to secure this prize. The resurgence of the automotive
industry and M&M's success in exploiting it, has created an opportunity to
strengthen the company through an entry into the Auto Components business, the
growth of which is being fueled by both, domestic and export demand.
M&M employ around 11,500 people and have six state-of-the-art-manufacturing
facilities spread over 500,000 square meters. M&M have also set up two satellite plants
for tractor assembly.

26

M&M have 49 sales offices that are supported by a network of over 780 dealers across
the country. This network is connected to the Company's sales departments by an
extensive IT infrastructure.
M&M's outstanding manufacturing and engineering skills allow it to constantly innovate
and launch new products for the Indian market. The Company's significant recent product
launch, the "Scorpio", resulted in the Company winning the National Award for
outstanding in-house research and development from the Department of Science and
Industry of the Government in 2003. The Company has launched India's first tractor with
turbo technology - the Mahindra Sarpanch 595 DI Super Turbo.
The Company's commitment to technology-driven innovation is reflected in Company's
plans of setting up of the Mahindra Research Valley, a facility that will house the
Company's engineering research and product development wings, under one roof.
The M&M philosophy of growth is centered on its belief in people. As a result, the
company has put in place initiatives that seek to reward and retain the best talent in the
industry. M&M is also known for its progressive labor management practices.
In the community development sphere, the company has implemented several programs
that have benefited the people and institutions in its areas of operations.

Founders

J.C.Mahindra was a mechanical engineer from VJTI, Mumbai. He was appointed

the countrys first Iron and Steel Controller.

K.C.Mahindra, a Cambridge educated economist, was partner with Martin Burn,

London, an agent to IISCO. The Government of India also requisitioned his
services. He took over as Chairman of India Supply Mission to Washington, USA.

27

 Inspiration

Mr.K.C.Mahindra and Mr. J.C.Mahindra were inspired by the vision of Pandit

Jawaharlal Nehru of building a strong Independent India

Mr. K.C. Mahindra It was with this focus that they set out to manufacture an
Indian vehicle that would be rugged, tough and capable of tackling the Indian
terrain.

Mission
At M &M, will design, manufacture and market Internationally Competitive,
Automotive Vehicles farm equipment and products. Our customers needs
especially the requirement of safety, reliability value for money and farm productivity
Will be our primary concern. In our Business operations are will ensure sustained
profitability and growth we will create a dynamic collaborative in which our people
will feel challenged and cared or and build an organization that is resilient flexible
and productive. As an organization we will be recognized for high Ethical Standards
and responsiveness to the social environment we will continue to be.

Objectives

The main objective of Mahindra is that they want to maintain none to second position
and be the Best top company by maintaining talented people.

1. Customer Focus:
People Culture:

By Encouraging team work

By providing a healthy and good work environment

By Sake practices
28

By appraisal and Reward System.

Community Culture:

By setting high ethical standards.

By responsible to environmental needs.

By to community welfare.

Time Discipline:

By Meeting set targets

By delivering on time

By ensuring service on time

By quick response to needs

Quality Discipline:

By positive reputation for quality

By following international quality assurance, systems and procedures.

By delivering right time and every time.

Cost Discipline:

By elimination of non-value added work.

Through continues improvement.

By productive use of assets.

Mahindra & Mahindras Logo symbolizes:

The road ahead that links the companys past with its future.

The road through which the companys thoughts, ideas, designs, and products will
travel.

A forward looking organization moving towards new horizons.

Innovation and dynamism.

This Logo is created by Mr.Shyam Kumar from the Automotive Sector Nasik.

29

 Core purpose and values

Core Purpose:
Indians are second to none in the world. The Founders of our Nation and of our
organization passionately believed this. We will prove them right by believing in
ourselves and by making Mahindra & Mahindra Limited known worldwide for
the quality, durability and reliability of its products and services.

Core Values:
I.

Good Corporate Citizenship:

As in the past, we will continue to seek long term success, which is in
alignment with our countrys needs. We will do this without compromising
on ethical business standards.

ii.

Professionalism:
We have always sought the best people for the job and given them the
freedom and opportunity to grow. We will continue to do so. We will support
innovation and well reasoned risk taking, but will demand performance.

iii.

Customer First:
We exist and prosper only because of the customer. We will respond to the
changing needs and expectations of our customers, speedily, courteously and
effectively.

iv.

Quality Focus:
Quality is the key to delivering value for money to our customers. We will
make quality a driving value in our work, in our products and in our
interactions with others. We will do it first time right.

30

v.

Dignity of the Individual:

We will value the individual dignity, uphold the right to express
disagreement and respect the time and efforts of others. Through our actions
we will nurture fairness, trust and transparency.

MANAGEMENT PROFILE
Board of Directors:
The Board of Directors of the Company has, as its members, eminent persons from
Industry, Finance, Investment and other branches of business, who bring diverse
experience and expertise to the Board.

The Company's current Board of Directors is as follows:

Keshub Mahindra

Chairman
Vice-Chairman &

Anand G. Mahindra

Managing Director
Director
Director
Director
Nominee Director
Director
Director
Director
Director
Executive Director
Executive Director
Executive
Director

Deepak S. Parekh
Nadir B. Godrej
M. M. Murugappan
V. K. Chanana
Narayanan Vaghul
A. S. Ganguly
R.K. Kulkarni
Anupam Puri
Bharat Doshi
Alan Durante
Arun Nanda

Secretary
31

&

The Management Board

The Management Board comprises the Presidents of the business Sectors as well as
heads of certain key corporate functions. The Vice-Chairman & Managing Director
chair the Board. The Board meets regularly and serves as a forum through which the
Corporate Centre implements its group responsibilities, which include formulation
of Group policies and strategies, goal setting, raising and allocating financial
resources, performance measurement, consolidated accounting and Group Human
Resource development.
The Management Board comprises:
Mr. Anand G.Mahindra
Vice Chairman & Managing Director
Mr. Alan Durante
Executive Director &
President - Automotive Sector
Mr. Bharat Doshi
Executive Director &
President - Trade & Financial Services Sector
Mr. A.K. Nanda
Executive Director & Secretary &
President - Infrastructure Development Sector
Mr. Anjanikumar Choudhari
President - Farm Equipment Sector
& Member of the Management Board
Mr. Rajeev Dubey
Executive Vice President - Human Resources and Corporate Services
& Member of the Management Board

32

Mr. Hemant Luthra

President - Mahindra Systems & Automotive Technologies
& Member of the Management Board
Mr. Raghunath Murti
Managing Director - Mahindra Intertrade Ltd.
& Member of the Management Board
Mr. Uday Y. Phadke
Executive Vice President - Finance, Accounts & Legal Affairs
& Member of the Management Board
Mr. Ulhas N. Yargop
President - Telecom & Software Sector
& Member of the Management Board

CLASSIFICATION OF M&M BUSSINESS SECTORS

BUSINESS SECTORS
33

Automotive

Farm

Trade & financial services

Information

Infrastructure

Automotive

Automotive sector:

34

M&M's automotive division was created in 1994 following an organizational

restructuring, but its origins go back to 1954. That was when the company entered into
collaboration with Willys Overland Corporation (now part of the Daimler Chrysler
group) to import and assembles the Willys Jeep for the Indian market. M&M began
producing light commercial vehicles (LCVs) in 1965.
The Group Companies are:

1. Automotive Division:
M&M's automotive division is in the business of manufacturing and marketing
utility vehicles and LCVs. It is the leader in this segment, with a market share in
excess of 50 per cent. The M&M brand symbolizes ruggedness, durability,
reliability, easy maintainability and operational economy. The customer profile
here includes individuals, traders, entrepreneurs, contractors, tour operators, taxi
owners, car hire companies, government departments and institutions, and the
Indian army.

2. Automartindia Ltd.
Automartindia is a business-to-consumer portal that offers a comprehensive
picture of the Indian automobile market. Launched in collaboration with a group
of partner organizations, it offers a wide range of new vehicles and a virtual
marketplace to buy or sell used automobiles. The site also features car reviews,
price information, technical comparisons of different models, and ratings to help
the consumer make an informed decision.

Farm Equipment sector:

35

The origins of M&M's Farm Equipment Sector lie in the formation of a joint venture
in 1963 between the Company, International Harvester Inc., and Voltas Limited,
christened the International Tractor Company of India (ITCI). This enterprise was a
shot in the arm for the green revolution then beginning to sweep the country. The
launch of high-performance tractors played a vital role in the mechanization of Indian
agriculture.
In 1977, ITCI merged with M&M and became its Tractor Division. After M&M's
organizational restructuring in 1994, this division was called the Farm Equipment
Sector.
M&M's Farm Equipment Sector is the largest manufacturer of tractors in India with
sustained market leadership of over 19 years. The Farm Equipment Sector is the
first Tractor Company in the world to win the Deming Application Prize. Also, it
is the fourth company in India and the 10th in the world, outside Japan, to win
this prize. It designs, develops, manufactures and markets tractors as well as
implements which are used in conjunction with tractors. The tractor industry in India
is segmented by horsepower into the lower segment of 25 HP, mid-segment of 35 HP
and higher segment of 45 HP and above. The Company's Farm Equipment Sector has
a presence in all these segments across all states.
The Farm Equipment Sector has also ventured into manufacturing of Industrial
Engines. M&M Industrial engines are used for various applications like Genset,
Industrial, Construction, Marine Compressors etc. These engines are manufactured at
the Company's state of art Engine Assembly plants at Kandivli and Nagpur.
M&M have two main tractor manufacturing plants located at Mumbai and Nagpur in
Maharashtra. Both these plants have been certified for ISO 9001, QS-9000 and ISO
14001.
Apart from these two main manufacturing units, the Farm Equipment Sector has
satellite plants located at Rudrapur in Uttarachal and Jaipur in Rajasthan.

36

The Farm Equipment Sector of the Company has a strong and extensive dealer
network of over 450 dealers for sales and service of tractors and spare parts. 28 area
offices, situated in all the major cities and covering all the principal states manage this
dealer network.

M&M tractors have earned goodwill and trust of more than 8, 00, 000 customers and
the 'Mahindra' tractor has come to be recognized as a powerful symbol of productivity
and performance.
In addition to capturing the domestic market, M&M's Farm Equipment Sector has
also found significant success in the international market. Whilst around 90% of our
tractor exports are to the USA, M&M also exports tractors to neighboring countries
like Nepal, Bangladesh and Sri Lanka and African countries like Uganda, Nigeria,
and Zambia etc.
Mahindra USA, a wholly owned subsidiary based in the USA, has established a
network of 140 dealers. Several other international markets are being developed to
expand M&M's global reach in the Farm Equipment Sector.
The Group Companies are:

1. Mahindra USA Inc:

Mahindra USA, a wholly owned subsidiary of M&M, began selling tractors in
America in 1994 from its headquarters in Tomball, Texas. It has since firmly
established the Mahindra brand and captured a significant share of the American
small-tractor market. The company has two-wheel- and four-wheel-drive utility
tractor lines for part-time farming enthusiasts, turf managers, nursery operators,
and small and medium-sized contractors. Its products have gained considerable
brand recall among users of small tractors in the US

2. Mahindra Gujarat Tractor Ltd.

37

This company was formed in 1978 after the Indian government nationalized the
ailing Hindustan Tractors. It is one of the oldest tractors manufacturing units in
India and produces rugged, low-cost tractors. The company has its own foundry
and facilities for making auto components.

3. Mahindra Shubhlabh Services Ltd.

MSSL is a virtual marketplace where farmers and traders of agricultural
commodities can sell their produce, obtain finance, buy seeds and fertilizers, rent
farm equipment, and check the latest weather information. The site provides
constantly updated market information to enable procurement of quality inputs at
competitive prices.

38

 Trade & Financial Services sector:

Credit is the lifeblood of commerce, which in turn is the engine that drives industry.
The Mahindra Group helps keep the wheels of industry moving with its presence in
the trade and financial services sector through the following companies.

1. Mahindra Intertrade Ltd.

Mahindra Intertrade is a wholly owned subsidiary of the Mahindra & Mahindra
group, one of the 10 largest industrial houses in India. MIL undertakes imports,
exports, third country business, domestic trading & marketing & distribution
activities.
Seeking to deliver a distinct value proposition through leveraging its skills &
competencies, Mahindra Intertrade handles a wide variety of products & services.
Starting with steel, Intertrade today handles Metals, Ferro Alloys, Application
Engineering products, Consumer Goods and Engineering goods. The first to set
up a Steel Service Centre in the organized sector to bring a value beyond
traditional intermediation - they now cover significant relationships in Auto, Auto
ancillaries, Home Appliances and Transformer manufacturers. Machine Tools
trading, now known as the Technical Business Group provides a clearly
differentiated value chain with installation, erection & servicing of state of the art
equipment. A key player in the Rubber & Tyre, the group has also diversified into
Non destructive testing equipment.

2. Mahindra Steel Service Centre Ltd.

MSSCL was incorporated in 1993 as a joint venture between M&M, Mitsubishi
and Nisho Iwai. A pioneer in the steel service centre business, it supplies cut-tolength steel blanks and silt coils to the automobile and home-appliances

39

industries. The main plant has well-designed processing lines, such as a feeder
line, a slitting line, a shearing line and an electrical sheet slitting line.

3. Mahindra & Mahindra Financial Services Ltd.

Incorporated in January 1991 by M&M with Kotak Mahindra Finance as a
promoter, MMFSL is in the business of finance, leasing and hire purchase. The
company lends monetary muscle to M&M's dealers and customers and to other
small businesses by extending short-term, lease and hire purchase finance.

Information Technology sector

Information Technology constitutes one of the thrust areas of the Mahindra Group.
The group's foray into Information Technology goes back to 1986 when the Flagship
Company of the Sector, Mahindra British Telecom, was formed in association with
British Telecom. The group established other IT companies in the 90s and today they
cater to entire IT services space from software engineering to product based solutions.
They aspire to become a leading provider of IT services globally.

1. Mahindra British Telecom Ltd.

A joint venture between Mahindra & Mahindra and British Telecom, are a leading
software services company focused on the global Telecom industry. MBT offers
solutions and Systems integration services to Telecom operators, Telecom
equipment manufacturers and Telecom technology suppliers. MBT utilizes its
experience developed across various hardware and software platforms to offer
comprehensive software services.

2. Bristlecone:
40

The Mahindra Group recently acquired a majority stake in US based IT services

and solutions company, Bristlecone Inc. and merged it with its subsidiary
Mahindra Consulting.
Bristlecone, a leading provider of extended supply chain solutions, and a business
and development partner of SAP, empowers Global 2000 companies and SMBs
alike to build scalable IT infrastructure and solutions that support their value
chain processes.
Bristlecone uses its deep knowledge of technology, industry domain and business
processes to facilitate and manage organizational change and deliver lasting value.

3. Mahindra Logisoft Business Solutions Pvt. Ltd.

The company is a joint venture with TVS family that brings domain expertise in
automotive industry. With the acquisition of Information Services Division of
Mahindra Holidays & Resorts the company now also possesses domain
knowledge of hospitality industry. The company is focused on product based
solutions in automotive and hospitality verticals. Current product range includes
Autopower - a solution for automotive dealerships, HumanEdge (HRMS) for
human resource management, and ConnectEDGE - an interactive GUI software
tool, designed to address specific needs of achieving customer care and
relationship.

4. Mahindra Engineering Services:

Mahindra Engineering Services, a division of Mahindra & Mahindra Ltd., is set
up to provide engineering services to global OEMs and automotive supplier
around the world. Our approach is to partner with our customers in the area of
product development by providing engineering services from a mix of on-site,
off-site, and off-shore services in the following areas- (a) Advanced surfacing and
reverse engineering (b) CAD (c) CAE (d) Rapid prototyping & Tooling and parts,
and (e) Validation. We are one of the few Asian full service providers, with strong
offshore engineering capabilities.

5. Mahindra Special Services Group:

41

Mahindra Special Services Group (MSSG) helps organizations develop

customized Information Security strategies to derisk their businesses and to
protect their competitive advantage.
MSSG's service offering help to identify, mitigate and manage the risk exposure
of the organization irrespective of its industry and the nature of the business. Our
ability to look at Information Security from a 'people & process' perspective
rather than an IT centric approach has helped organizations to protect their short
and long term business strategies and objectives thus preventing loss of hundreds
and thousands of dollars every year.

Infrastructure Development sector:

The 1990s saw India embrace liberalization and globalization, and infrastructure
development was the key to spurring domestic and foreign direct investments. This
generated employment, gave free reign to domestic entrepreneurial talent, and
accelerated the country's GDP growth to unprecedented levels.
The Mahindra Group is playing its part in driving the nation's infrastructure
development, with a host of companies operating in real estate, project consultancy
and design, engineering consultancy, the hospitality industry and other core segments.

1. Mahindra Gesco Developers Ltd.

The Great Eastern Shipping Co Ltd. diversified into real estate activities with the
formulation of its property division in 1992 and over a period of time spread its
operations in Mumbai, Navi Mumbai, Gurgaon, Pune and Bangalore.
The Property Division of The Great Eastern Shipping Co Ltd., subsequently
demerged from the parent Company in February 2000 to become an independent
entity as GESCO Corporation Ltd., with focus on its core business activities of
projects management services, business centers and development of residential
and commercial complexes.

2. Mahindra Acres Consulting Engineers Ltd.

42

Acres is one of the world's leading consulting engineering firms, with expertise in
planning, engineering and project management. It has provided imaginative and
cost-effective engineering solutions to clients throughout North America and
around the world for over seven decades. The company's business lines
encompass the power sector (hydroelectric, thermal, and transmission and
distribution), transportation (air, water and ground transportation), and mining and
heavy industries. Its services include planning, design and project and
environmental management in the civil, electrical, mechanical, hydraulic and geotechnical disciplines. MACE leverages the considerable technical and financial
resources of the Mahindra Group to stand tall in the country's consulting
engineering industry.

3. Mahindra Holidays & Resorts India Ltd.

Mahindra Holidays & Resorts India Ltd., a part of the Infrastructure Sector of the
Mahindra Group, brings to the industry values such as Reliability, Trust and
Customer Satisfaction. Started in 1996 the company today has a Customer Base
of over 15000 members and 7 beautiful Resorts at some of the exotic spots in
India, such as Goa, Munnar, Ooty, Manali, Kufri, Mussoorie and Binsar.

4. Mahindra Industrial Park Ltd.

Mahindra Industrial Park Ltd. (MIPL) symbolizes the combined expertise of three
giants of Indian industry namely Mahindra & Mahindra, Infrastructure Leasing &
Financial Services (IL&FS) and Tamil Nadu Industries Development Corporation
(TIDCO).
MIPL is a special purpose vehicle formed to develop and promote Mahindra
City, India's first fully planned and integrated Business City in a private-public
partnership model. Located just 30 minutes from Chennai airport, Mahindra City
encompasses 1400 acres of infrastructure-ready space surrounded by hills, lakes
and a reserve forest.

5. Mahindra AshTech Ltd.

43

Mahindra AshTech Ltd. (MATL) is a wholly owned subsidiary of Mahindra &

Mahindra Ltd. It is in the business of turnkey contract execution for Ash Handling
Systems and Traveling Water Screens. MATL has a well-equipped manufacturing
facility in the heart of Mumbai city with Regional / Branch offices at New Delhi
& Calcutta. MATL entered in this business as Turner Hoare Company Ltd. and
subsequently was renamed as Mahindra Spicer Ltd. by virtue of technical
collaboration with Dana Spicer Corporation. MATL has a track record of more
than 100 major contracts. In 1984 "Mahindra Spicer Ltd." merged, with parent
Company and became a division known as "MSL Division of Mahindra &
Mahindra Ltd". In 1999 the business of MSL Division was transferred, as a going
concern, to Mahindra AshTech Ltd.

Automotive Components sector:

This sector of the Mahindra Group has companies involved in the manufacture of
stampings, moulded components, propeller shafts and clutches. In addition to catering
to the group's flagship company, it supplies material to major OEMs such as Telco,
Ashok Leyland, Maruti Udyog and Bajaj Auto. The sector also exports to the United
States and to European markets.

1. Siro Plast Ltd.

Siro Plast manufactures engineered composites such as sheet-moulding
compounds and dough-moulding compounds. Its partnership with Menzolit
GmbH of Germany provides Siro Plast the latest technology in formulations,
manufacturing processes, application engineering, and mould design and
manufacturing. Depending on technological demands, materials and products are
made using different types of reinforcements, such as chopped glass roving,
chopped strand mats, continuous roving and synthetic fibres. Siroplast's customer
list includes big names from the automobile sector, including M&M, Telco and
Ashok Leyland. The company was registered in 1982, received technical knowhow from Menzolit in 1986, installed its plant and equipment in 1988, and started
commercial production in 1989.

44

2. MUSCO:
Musco is a leading producer of various categories of high quality
alloy steel in various sizes, shapes (such as rounds, squares, flats and
bars) as per specifications. The plant is located at Khopoli in Maharashtra and has
a capacity to despatch 96,000 MT of alloy steel per annum. MUSCO produces
through ingot and continuous casting routes. MUSCO's products have a large
demand from automobile, engineering and capital goods industries.

3. Mahindra Engineering & Chemical Products Ltd.

MECP has two divisions, M-Seal Division is engaged in manufacturing and
marketing of products for Energy Sector and Engineering Division is a major
manufacturer of material handling equipment. M-Seal product range includes
Cable Jointing Kits and accessories, Electrical Insulating compounds and
Composite Fibre products. MECP is the pioneer to introduce cast resin joints for
cable joining and terminations. Responding to changing market needs with
technical innovations and new products, MECP has been maintaining lead
position in the market.
Engineering Division products include wide range of conveying equipment and
systems for Cement, Chemicals, Steel and allied Process industries.

45

III.CHAPTER
Review of
literature

46

TOOLS AND TECHNIQUES OF INVENTORY

MANAGEMENT:Effective inventory management requires an effective control system for
inventories. A proper inventory control not only helps in solving the acute problem of
liquidity but also increases profits and causes substantial reduction in the working capital
of the concern. The following are the tools and techniques of inventory management and
control;
Determination of stock levels.
Determination of safety stock levels.
Selecting a proper system of ordering for inventory.
Determination of economic order quantity (EOQ).
A.B.C analysis.
Classification and codification of inventories.

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 is too high it will be unnecessary tie-up of capital.
Therefore, an optimum level of inventory where costs are the minimum and at the same
time there Id. No. stock-out, which may result in loss of sale or stoppage of production.
Various stock levels are discussed as such
A) MINIMUM LEVEL:This represents the quantity which must be maintained in hands at all times. If
stock is less than the minimum level then the work will stop due to shortages of

47

materials. Following factors are taken into consideration while fixing minimum stock
level;

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 in processing the
order and then executing it is known as lead-time. It is essential to maintain some
inventory during this period.
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 materials also affects the minimum level. If a material is required
only against special orders of the consumers then minimum stock will not be required for
such materials minimum stock level can be calculated using the formula:

Minimum stock level=re-order level-(normal consumption x normal reorder period).

B) RE-ORDER LEVEL:-

48

When the quantity of materials reaches at a certain figures then fresh order
is sent to get materials again. The order is sent before the materials reach minimum stock
level. Re-ordering level or ordering level is fixed between minimum stock level and
maximum stock level. The rate of consumption, number of days required replenishing the
stock, and maximum quantity of materials required on any day is taken into account
while fixing re-ordering level. Re-ordering level is fixed with the following formula.

Re-order 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 stock. If
the quantity exceeds maximum level limit then it will be over-stocking. A firm should
avoid over-stocking because it will result in high material costs. Over-stocking will more
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 will
depend upon following factors:
The maximum requirements of materials at any point of time.
The availability of space for storing the materials.
The rate of consumption of materials during lead-time.
The cost of maintaining the stores.
The possibility of fluctuations in prices.
Availability of materials. If the materials are available only during seasons
then they will have to be stored foe the rest of the period.
The possibility of change in fashions and production process will also
affect the maximum stock level.

49

The following formula may be used for calculating maximum stock

level;
Maximum stock level= re-order level + re-ordering quantity
(minimum consumption X minimum re-ordering period).

D) DANGER LEVEL:It is the level beyond which materials should not fall in any case. If level arises
then immediately steps should be taken to replenish the stocks even if more cost is
incurred in arranging the materials. If materials are not arranged immediately then there
is a possibility of stoppage of work. Danger level is determined with the formula:

Danger level= consumption X maximum re-order period for emergency

purchases.
E) AVERAGE STOCK LEVEL:The average stock level is calculated as such:

Average stock = minimum stock level +1/2 of re-order quantity.

50

DETERMINATION OF SAFETY STOCK:The safety stock is a buffer to meet unanticipated increase in usage. The usage of
inventory cannot be perfectly forecasted. It fluctuates over a period of time. 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. The stock-out can prove costly by
affecting the smooth working of the concern. In order to protect against out of usage
fluctuations, firms usually some margin of safety stocks. The basic problem is to
determine the level of quantity of safety stocks. Two costs are involved in determination
of this stock. I.e., opportunity cost of stock outs and the carrying costs. Thee stock-outs of
raw materials cause production as the firm cannot provide proper customer service. If a
firm maintains low level safety stocks them frequent stock-outs will occur resulting into
the large opportunity costs. On the other hand, the larger quantity of safety stocks
involves higher carrying costs.

There are three prevalent systems of ordering and a concern may use
any one of these,
Fixed order quantity system generally known as economic as economic order
quantity (EOQ) system.
Fixed period order system of periodic re-ordering system or periodic review
system;
Single order and schedule part delivery system.

DETERMINATION OF ECONOMIC ORDER QUANTITY (EOQ):A decision about how much to order has great significance in inventory
management. The quantity to be purchased neither should be neither small nor big
because costs of buying and carrying materials are very high. Economic order quantity is
the size of the lot to be purchase which is economically viable. This is the quantity of
materials, which can be purchased at minimum costs. Generally, economic order quantity
is the point at which inventory carrying costs are order costs. In determining economic

51

order quantity it is assume that cost of managing inventory is made up solely of two parts
I, e. ordering cists and carrying costs

C = consumption of the material concern in units during a year or a particular period.

O = cost of placing one order including the cost of receiving the goods I.e. cost of getting
An item into the firm stores.
I = interest payment including variable cost of storing per unit per year or particular
period.

A) ORDERING COSTS:These are the costs, which are associated with the purchasing or ordering of
materials. These costs include;
Costs of staff posted for ordering of goods. A purchase order is processed and
they placed with suppliers. The labor spent on this process is including in ordering
cost.
Expenses include on transportation of goods purchased.
Inspection costs of incoming materials.
B) CARRYING COST: These are the costs for holding the inventories. These costs will not be incurred if
inventoried are not carried. These costs include;

52

 The cost of capital invested in inventories. An interest will be paid on the amount
of capital of capital locked-up in inventories.
Cost of storage, which could have been used of 4 other purchases.
The loss of materials due to determination and obsolescence. The materials may
deteriorate with passage of time. The loss of obsolescence arises when the
materials in stock are not usable because of change in process or product.
Insurance cost.
Cost of spoilage in handling of materials.

A-B-C ANALYSIS (ALWAYS BETTER CONTROL):It is one of the types of the inventory control in which the material are divided
into number of categories for adopting a selective approach for material control. It is
generally seen that in manufacturing concern, a small percentage of items contributed a
large percentage of value of consumption and a large percentage of times of material
contribute a small percentage of value. In between these two limits there are some items,
which have almost equal percentage of vale of materials.
Under A-B-C analysis the materials are divided into three categories viz., A, B &
C, and X, Y, Z where A, B, C represents the value of the material, where as X, Y, Z
represents the consumption of the materials.

TOOLS AND TECHINIQUES OF INVENTORY

MANAGEMENT, WHICH COMPANY IS ADOPTING: -

53

 KAN BAN
JIT
MILK RUN CONCEPT

1) KANBAN:A kanban is a card containing all the information required to be done on product
at each stage long its path to completion and which parts are needed at subsequent
process. These cards are used to control work-in-process (W.I.P), production, and
inventory flow. A KANBAN system allows a company to use just-in-time (J.I.T)
production and ordering systems which allow them to minimize their inventories while
still satisfying customer demands.
In M&M Company they used Kanban system for c class items.
2) JUST IN TIME INVENTORY CONTROL:the just-in-time inventory control system, originally developed by taichi okno of
happen, simply implies that the firm should maintain a minimum level of inventory and
rely on suppliers to provide parts and components just in time to meet its assembly
requirements. This may be contrasted with the traditional inventory management system,
which calls for maintaining a healthy level of safety stock to provide a reasonable
protection against uncertainties of consumption and supply the traditional system may be
referred to as a just-in-case system.
The just in time inventory system, while conceptually very appealing, is difficult to
implement because it involves a significant change in the total production and
management system. It requires inter alias
54

(i)

A strong and dependable relationship with suppliers who are

geographically not very remote from the manufacturing facility.

(ii)

A reliable transportation system and

(iii)

As easy physical access in the form of enough doors and conveniently

located docks and storage areas to dovetail incoming supplies.

under the just in time inventory system a concentrated effort is made to lower the
ordering cost (F in the above equation) and also the safety stock by forging stronger longterm relationship with the supplier. As a result both the components on the right hand side
of the above equation declaim and this means that the average inventory level as lower.
3) MILK RUN CONCEPT:The concept of the milk run is day to day purchasing. Here the buyer will
purchase the material according to the production, which is for the next one day.
The buyer will first know the safety and control stock and then he tells to the supplier the
estimated trigger value. In milk run concept only quality-certified stock will be delivered.
The purchaser should estimate the lead-time and it is compulsory so as to have the
control over lead-time. It is direct on-line system. There will be no inspection so as to
save time.

Advantages:

Economical transportable lot(minimum transportation cost per piece)

No inventory carrying cost at plant and at warehouse.

55

It is direct online system

Quality certified stock will be delivered and so no inspection is required.

4) TWO BIN SYSTEMS (DUAL CARD SYSTEM): Two bin systems use a conveyance (withdrawal) kanban and a production kanban.
The conveyance kanban specifies the quantity of the part to be produced by the preceding
process, while a production kanban specifies the quantity of the product to be with drawn
by the subsequent process.

LAST IN FIRST OUT (LIFO):

LIFO method of pricing issues assume that the most recently purchased stocks are
used first therefore, the items remaining in stock at the end of the year are of earlier
purchases. This methods result in a higher amount of cost of goods and a lower profit
figure, during the items of rising prices.
The main advantages of using LIFO method are:
(a). A matching of current costs against current revenues is facilitated. Cost
of goods sold under this method represents the cost of recent purchases.
(b). This method is helps in saving in taxes when inflationary conditions are
present in the market. This is because most recent purchases are matched against sales
revenue.

FIRST IN FIRST OUT (FIFO):

This methods assumes that the oldest items in stock are issued or used first and the
items in stock are out of more recent purchases. Therefore, the issues priced in the
56

chronological order of receipt resulting in closing stock being valued at the latest
purchases price.
Advocates FIFO method argue that this method follows the conventional
practice that goods purchased first are sold first. Under conditions rising prices, FIFO
method requires that stock of earliest data and prices be demanded sold first, with the
result that the P/L account reflects a higher level of profit than would have been the case
if latest costs have been used. Closing stock is shown in the balance sheet at the more
recent acquisition prices.

CLASSIFICATION OF INVENTORIES: CLASSIFICATION:The materials are classified into 2 they are

1. ABC analysis
2. XYZ analysis
1) ABC ANALYSIS:We assume that a vehicle cost is 100 Rs. The 70% of items from A class, 20%
items from B class and 10% items from C class items
ABC analysis is value based
A - 70
B - 20
C - 10

57

100

vehicle cost

For A class items M&M Company use direct online (DOL).

They purchase A items from local vendors.
Ex: - chases frame, wires.
A class parts are purchased daily
B class parts are purchased up to 4 days
C class parts are purchased up to 7 days or 10 days.

2) XYZ CLASSIFICATION: XYZ classification is consumption based.

X RUNNER MODEL
Y REAPETER MODEL
Z - STRANGER MODEL
AX daily consumption.
AY taken 2 to 3 days for consumption.
AZ - by taking as per order.
In M&M they maintain less stock, which are costly.

PAYMENT TERMS:They take the time for the payment of 32 to 64 days depending up on the vendors.

58

CODIFICATION OF MATERIALS:The inventories of manufacturing concern may consist of raw materials; work in
process, finished goods. Spares, consumable stocks etc. all these categories may have
their sub-divisions, for proper recording and control of inventory, a proper classification
of various types of items is essential. 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 large concerns but also for small
concerns. Lack of proper classification may also lead to reduce in production.

Guideline:
Part I
Guidelines for deciding Schedule Based strategy of procurement for schedule
based the following conditions should get satisfied all together.

Vendor Response Time + Transit Time + Internal Lead Time is

less than one day
Part falls in AX, AZ & BZ category.
Part is quality certified.

Part II
After having decided it follow Consumption Driven strategy for procurement,
decide whether Fixed Time Variable Quantity (FTFQ) or Fixed Quantity Variable Time
(FQVT) or Fixed Quantity Fixed Time (FQFT) be made applicable.
FQFT is useful in the case of parts where one vendor is supposed to get Fixed Qty
share by agreement irrespective of production volume. Suppose for a part X there are two
59

vendors A and B we have an official arrangement with vendor A whereby what ever be
total consumption level we are bound to pick up Fixed Quantity from him then the
Quantity from him then the Quantity and Time of the trigger with his vendor could be
standardized to have Fixed Quantity schedules at Fixed Time Intervals. The increase and
decrease in total consumption of the month is taken by the other vendor with whom the
scheduling arrangement has to be of Fixed Quantity and Variable Time type.

Part III:For schedule driven

Work out stock quantity to cover for production requirement for one day
Vendor supplies days requirement in the morning by 10am.
At 10am communicate next two days production schedule.

Part IV:Fixed Time Variable quantity (FTVQ)

Fix up replenishment interval
Calculate Control Level by formula

CL= ADD (RI+VRTLT+ILT)*FACTORY OF SAFETY

To begin with take factor of safety as one
Decided upon the control level at which you are comfortable to work with the closing
stock level as in the simulation
Substitute acceptable control level in the formula to recalculate factor of safety

Part V: Fixed Quantity Variable time (FQVT)

Decide upon the Fixed Quantity shipping lot based on considerations like most preferred
load, most economically transportable lot etc,

60

Calculate RI as Fixed Qty/ADD

Calculate Control Level

CL=ADD (RE+VRT+TLT+ILT)* Factor of Safety

To being with take factor of safety as one.
Simulate for above CL.
Fix the CL through simulation.
Substitute in the formula to arrive at proper factor of safety.

One Bin, Two Bin System of replenishment are offshoots of FQVT system in
which case the Fixed Qty decided is isolated in a bin to trolley or pallet or specified area
from which it is issued to production and empty bin is taken as a trigger for schedule
purpose. Here total quantity in one bin in the case of one bin system or total quantity in
both the bins in the two bin system is taken as the control level.

Estimation of different costs: In the calculation of the ordering cost and also for other calculation purpose or
analyzing purpose, I have considered ALL CLASSES ITEMS

AND TO ALL

MODELS, To calculate the various costs which are involved in the analysis of inventory
management as explained earlier.

TRANSPORTATION COST:These are the cost, which are incurred when the spare parts/materials are procured
from different places in M&M ltd, the spare parts are procured from the places like Delhi,
noida, Mumbai, pune, nashik and bang lore etc. and the cost is incurred by procuring the
spare parts form vendors place to the company I, e. manufacturing unit.

61

There are different slab for the transportation cost procured from different places.
Two main important factors are considered in calculating transportation cost.
Distance between the company and vendors place.
Depending upon the weight of the spare part to be transported.
Transportation cost is taken as maximum 2.5%. The basic price of the spare parts on an
average. It is calculated as the overall fright incurred during previous year divided by
purchases made. Here in M&M the transportation cost will be 6 crores pa (app).

For Zaheerabad
CARRYING COST: These are the costs for holding the inventories. These costs will be depending up
on their classes. These costs will not be incurred if inventories are not carried.
Usually 4 days inventory are kept in stock for any A category items. Hence the carrying
cost includes various costs and those are capital locked in the inventories, storage cost,
maintenance cost etc.

ESTIMATION OF STOCK LEVELS FOR CHAMPION:

NOTE:- HERE IAM CONSIDERING ONLY CHAMPION MODELS.
There are different models used in the calculations of the stock levels. As
mentioned earlier the formula for the calculations of the stock levels, economic order
quantity, number of purchase orders placed in the month for different spare parts.

Reordering quantity - 2000units.

Reordering period

2 to 3 weeks.

Weekly usage: 62

Maximum

600 units.

Normal

480 units.

Minimum

390 uni

RE-ORDERING QUANTITY:
The quantity to order is called re-order quantity. There are many factors to be considered
to place an order for certain level at certain time. It depends upon the present demand,
future, and the coordination between the buyer and vendor etc.
The re-ordering quantity, which is generally followed, is that of ordering the bin
quantity. In M&M ltd. A system is followed in ordering and that is like 2-bin system.
After the consumption of 1-bin order is placed with the vendor for the procurement of
spares.
Hence reordering quantity is taken as the 1-bin quantity. This process of ordering
is not exact as per the schedule of the production is concerned because it keeps on
changing
Reordering quantity is 2000 units
Reordering period is 2-3weeks.
Reordering level = maximum consumption X maximum re-order period
600 x 3 = 1800 units.

MINIMUM STOCK LEVEL: NOTE: - For the calculated of the champion vehicles as 480. Hence the weekly
consumption of the parts id constants
Ex: - consider CHAMPION ENGINE for calculation purpose.
Normal daily consumption = 480units.
Normal reorder period =
Reorder level =

2.5weeks.

1800 units.

63

Minimum stock level reorders level- (normal consumption x normal reorder period)
1800-(480 x 2.5)
= 600 units
The engine stocks should not go below 600 units. Otherwise there will be storage in
stocks of engine and the company can come across losses due to the storage.

MAXIMUM STOCK LEVEL:It is the level at which it is risk of storing the inventory and thus it is loss to the company.
If it exceeds this level.
It is calculated as:
Re-order level=1800 units.
Re-order quantity =2000 units.
Minimum consumption=390 units.
Minimum re-order period = 2 weeks.
Maximum stock level = re-order level + re-order quantity (minimum consumption
X minimum re-order period).
=1800 + 2000 (390 x 2)
=3020 units.
From this it is clear that the stock level of the engine should not exceed above 3020 units.
It will be economical to maintain stock below 3020 units. Above this level the company
incurs relating sort the maintenance of stock, loss due to storage, storage cost, insurance
cost, etc.

AVERAGE STOCK LEVEL: It is the company should maintain in order to reduce the various cost of inventory
management. At this level it is very economical for the company to maintain the stocks at
this level

64

It is calculated as:
Minimum stock level = 600units
Re-ordering quantity = 2000 units.
Average stock level = minimum stock level + of re-ordering quantity.
=600 + (1/2 x 2000)
=1600 units.

SUPPLY CHAIN MANAGEMENT:A supply chain management is a network of facilities and distribution option that
performs the functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished products to
customers. Supply chains exist in both services and manufacturing organizations,
although the complexity if the chain vary greatly from industry and firm to firm.
Below is an example of very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step, and
then transported to distribution centers, and ultimately, customers.

THE TYPICAL BENEFITS OF EXCELLENT SUPPLY:Reduction in total logistics costs as a percentage of revenue (material acquisition, order
management, inventory costs and finance/IT support).
Reduction in order-fulfillment leads time.
Reduction in inventory.
Improvement in meeting commitment dates.
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organization along the supply chain operated independently.

65

These organizations have their own objectives and these are often conflicting.
Marketings objective of high customer service and maximum sales collars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very
little information beyond historical buying patterns.
The result of these factors is that there is not a single integrated plan for the
organization-there was as many plans as businesses. Clearly, there is a need for a
mechanism together supply chain management is a strategy through which such
integration can be achieved.
Supply chain management is typically viewed to lie between fully vertical
integrated firms, where the entire material flow is owned by a singe firm and those where
each channel member operates independently. Therefore coordination between the
various players in the chain is key in its effective management.
Supply chain management can be compared to a well-balanced and wellpracticed relay team. Such a team is more competitive when each player knows to be
positioned for the hand-off. The relationships are the strongest between players who
directly pass the baton, but the entire team needs to make a coordinated effort to win the
race.

Supply chain decisions

We classify the decisions for supply chain management into two broad categories
strategic and operational. As the term implies, strategic decisions are made typically
over a longer time horizon. These are closely linked to the corporate strategy (they
sometime {\it are} the corporate strategy), and guide supply chain policies from a
decisions are short term and focus on activities over a day-to-day. The efforts in these
types of decisions Is to effectively and efficiently manage the products flow in the
strategically planned supply chain.
There are four major decision areas in supply chain management.
66

 location
Production.
Inventory and.
Transportation.
And there are both strategic and operational elements in each of these decision areas.

1. LOCATION DECISIONS:The geographic placement of production facilities, stocking points and sourcing
points is the is the natural first step in creating a supply chain. The location of facilities
involves a commitment of resources to a long-term plan. Once the size, number, and
location of these are determined, so are the possible paths by which the product flows
through to the final customer.
These decisions are of great significance to a firm since they represent the basic
strategy for accessing customer markets, and will have a considerable impact on revenue,
cost, and level of service. These decisions should be determined by an optimization
routine that considers production costs, taxes, duties and duty drawback, tariffs, local
content, distributions costs, production limitations, etc. although location decisions are
primarily strategic, they also have implications on an operational level.

2. PRODUCTION DECISIONS:The strategic decisions include what products to produce, and which plants to
produce them in, allocation of plants, plants to DCs, and DCs to customer markets. As

67

before, these decisions have a big impact on the revenues, costs and customer service
levels of the firm. These decisions assume the existence of the facilities gut determine the
exact path(S) through which a product flows to and from these facilities.
Another critical issue is the capacity of the manufacturing facilities and this
largely depends the degree of vertical integration within the firm. Operational decisions
focus on detailed production scheduling .these decisions includes the construction of the
master production schedules. Scheduling production on machines, and equipment
maintenance. Other considerations include workload balancing, and quality control
measures at a production facility.

3. INVENTORY DECISIONS:These refer to means by which inventories are managed .inventories exist at every
stage of the supply chain as either raw materials. Semi finished or finished goods. They
can also be in process between locations. Their primary purpose to buffer against any
uncertainty that might exist in the supply chain .since holding of inventories can cost
anywhere between 20 to 40 percent of their value. The efficient management is critical in
supply chain operations. It is strategic in the sense that top management sets goals.
How ever, most researches have approached the management of inventory from
an operational perspective. These include deployment strategies (push versus pull),
control policies the determination of the optimum levels of order points, and setting
safety stock levels, at each stocking location. These are critical since they are primary
determinants of customer service levels.
4. TRANSPORTATION DECISIONS:-

68

Therefore customer service levels, and geographic location play vital roles in
such decisions. Since transportation is more than 30% of the logistics costs. Operating
efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments
versus lot-for-lot). Routing and scheduling of equipment are key in effective management
of the firms transport strategy.

IV. CHAPTER
Data analysis
&
Interpretation
69

TABLE 3.1:
TOTAL PRODUCTION OF DURING THE YEAR -2011-2012, 2012-2013, 2013- 2014 TO END OF THE YEAR
MONTH/YEAR

MARCH-14

MARCH -13

MARCH -12

MARCH-11

MARCH-10

MODEL WISE
LOAD KING SR
CABKING SR
CABKINGJR(SXJ)
VOYAGER
FJ
TOURISTER/MOUKA
MARSHAL
TOTAL FOURWHEELER
CHAMPION
(3 WHEELER)
TOTAL

ACTUAL

ACTUAL

ACTUAL

4960
32
917

3604
44
690

2444
124
575

68

154

249

693

854

2707

2172

2172

1428

2114

485

10956

8003

7527

23230

17794

10279

34186

25797

17806

INTERPRETATIONIn the above table we can see that there is a tremendous increase in total production of
three, four wheeler which gave rise to the growth of inventory maintenance from 2011-2012, 2012-2013,20132014.

70

TABLE 3.2:
TOTAL DISPATCH OF DURING THE YEAR -2011-2012, 2012-2013,
2013-2014 TO END OF THE YEAR
MONTH/YEAR

MARCH -14

MARCH -13

MARCH -12

MODEL WISE

ACTUAL

ACTUAL

ACTUAL

LOAD KING SR
CABKING SR
CABKINGJR(SXJ)
VOYAGER
FJ
TOURISTER/MOUKA
MARSHAL
TOTAL

4766
32
861
79
741
2043
2126

3589
44
682
144
893
2066
470

2422
127
585
253
2791
1422
0

FOURWHEELER
CHAMPION

10648

7888

7600

(3 WHEELER)

23118

17528

10273

TOTAL

33766

25416

17873

71

INTERPRETATION:
In the above table we can see the total dispatch of three, four wheeler
which gives rise to the

growth

of inventory maintenance

from 2011-2012,

2012-2013, 2013-2014

TABLE 3.3:
FIVE YEARS COMPARITIVE STATEMENT OF PRODUCTION DISPATCH
FOR THREE WHEELER
SEGMENT

PRODUCTION

GROWTH%

DISPATCH

GROWTH%

2010-2011

16,695

31.34%

12,952

24.16%

2011-2012

17,794

33.40%

17,528

32.70%

2012-2013

18,774

35.24%

23,120

43.13%

2013-2014

19,512

36.77%

29250

53.51%

2014-2015

20,779

37.98%

36,412

64.15%

INTERPRETATION: There is a tremendous increase in production

which in turn gave rise to growth of production and dispatch
2011,2011-2012,2012-2013,2013-2014,2014-2015.

PRODUCTION AND DISPATCH

72

and dispatch
from 2010-

TABLE 3.4:
FIVE YEARS COMPARITIVE STATEMENT OF PRODUCTION ANDDISPATCH

FOR LIGHT COMMERCIAL VEHICLES

SEGMENT

PRODUCTION

GROWTH%

DISPATCH

GROWTH%

2010-2011

5,847

26.59%

6,220

28.34%

2011-2012

7,364

33.49%

7,284

33.19%

2012-2013

8,774

39.90%

8,441

38.46%

2013-2014

9,241

42.19%

9,541

39.10%

2014-2015

10,641

48.21%

10,645

45.55%

73

INTERPRETATION:Comparing the two years we can see a raise in production

and dispatch and a maximum growth of production and dispatch mostly for light
commercial vehicles.

PRODUCTION AND DISPATCH FOR LIGHT

COMMERCIAL VEHICE

TABLE 3.5:
FIVE YEARS COMPARITIVE STATEMENT OF PRODUCTION AND DISPATCH
FOR UTILITY VEHICLES

74

SEGMENT

PRODUCTION

GROWTH

DISPATCH

GROWTH%

2010-2011

2,470

33.17%

2,485

33.25%

2011-2012

2,485

33.37%

2,492

33.35%

2012-2013

2,490

33.44%

2,495

33.39%

2013-2014

2495

33.45%

2,498

33.43%

2014-2015

2,510

33.65%

2,505

33.53%

75

INTERPRETATION:
There is a great demand in production dispatch for utility vehicles which
gave rise to maximum growth

when Compared to other vehicles during 2010-

2011,2011-2012,2012-2013,2013-2014,2014-2015.

PRODUCTION AND DISPATCH FOR UTILITY VEHICLES

TABLE 3.6:
CUMULATIVE PRODUCTION AND DISPATCH

SEGMENT

PRODUCTION

GROWTH

DISPATCH

GROWTH

2010-2011

19410

24.44%

19029

24.33%

2011-2012

25797

32.49%

25416

32.49%

2012-2013

34186

43.05%

33766

43.17%

2013-2014

40,583

51.10%

40,073

51.33%

2014-2015

48,892

62.10%

48,423

62.01%

76

CUMULATIVE PRODUCTION AND DISPATCH

INTERPRETATION:
There is an increase in total production and dispatch of Vehicles from the past three years.

TABLE 3.7:
MAINTAINANCE OF INVENTORY FOR CHAMPION MODEL

STOCK LEVELS
REORDERING

NO OF UNITS

LEVEL

1800

MINIMUM LEVEL

600

77

MAXIMUM

LEVEL

3020

AVERAGE LEVEL

1600

INTERPRETATION:
From the above table we can see that Mahindra & Mahindra will always maintain
a stock for champion according to these levels shown in the table.

TABLE 3.8:
MODEL WISE PROCUREMENT OF INVENTORY IN A NO. OF DAYS

MODELS ASSEMBLING IN

TIME

MAHINDRA & MAHINDRA

INTERVAL

78

CHAMPION

8 DAYS

25 SEATER

10 DAYS

LOAD KING

24 DAYS

MAX AND MARSHAL

8 DAYS

TOURISTER(50 SEATER)

3 DAYS

INTERPRETATION:
From the table we can see that procurement of materials will be done
accorinding to the model wise and also for an definite inteval of no of days and
definitely we can say that JIT system can be implemented in Mahindra &
mahindra.

TABLE 3.9:
IMPLEMENTATION OF A-B-C ANALYSIS:

79

INTERPRETATION:
From the above

table

we can se that Mahindra & Mahindra is using A-B-C

analysis and much preference is given to A class items and it is future classified
to X-Y-Z analysis and then Preference is given to B,C class items.

80

V. CHAPTER
Findings,
Suggestions &
Conclusion

FINDINGS
81

 For all the models assembled in Mahindra & Mahindra the reordering
quantity is followed by two bin system i.e. after the consumption of
one bin only the second bin order is placed.

The minimum stock level that Mahindra & Mahindra will store for
champion model is 600 units by calculation.

There is a risk and loss to the company if it exceeds a maximum

stock more than 3020units for champion model.

From the study we found that for champion auto the average stock
level is 1600 units on the basis of minimum stock and reordering
quantity.

From the past two years there is a tremendous increase of production

and dispatches which in turn gave rise to growth of all models of
Mahindra&Mahindra.

Management concentrates much while taking decisions in supply chain

as there is a problem in transportation due to location disadvantage.

JIT

system

is

being

implemented

in

Mahindra&Mahindra

as

consumption of materials for all models are procured for a definite

period of time.

While purchasing materials a definite codification is given to each and

every spare parts of vehicle for all models and it is maintained with
that particular code only.

82

SUGGESTIONS

The process two bin system of reordering quantity must be taken exactly as per
the schedule of production

as there may be changes due to increase in

demand and unforeseen conditions.

The minimum and maximum stock level should be accordingly to the
calculated units, otherwise there will be a risk of storing inventory and thus it
is a loss to the company.
The company should maintain the average stock level accordingly in order to
reduce the various costs of inventory management.
Investment of finance will be less if the stock is brought day-to-day. So the full
inventory has to be made direct online system on basis of milk run concept.
To keep materials cost under control so that they contribute in reducing cost of
production and over all costs.
Proper codification leads to maximum cost control.
Finally I suggest that Mahindra & Mahindra should continue in using the high
Japanese technology .

83

CONCLUSION
Finally it is conclude that MAHINDRA & MAHINDRA plant, Zaheerabad Inventory
system is very good with high Japanese Techniques.
The stock levels are being constant in last three years.
Mahindra & Mahindra are maintaining average stock levels in order to reduce the
various inventory cost.

84

Bibliography

85

BIBLIOGRAPHY

FINANCIAL MANAGEMENT - PRASANNA CHANDRA

COST ACCOUNTING - S. N. MAHESHWARI
COST ACCOUNTING - VARSHINI & SAXENA

Websites:
www.mahindra.com
www.mahindraautomotive.com

86