A REPORT ON “A STUDY ON INVENTORY MANAGEMENT IN LUCAS TVS AT PADI (T. N. )” By: Karthikeyan M S LUCAS-TVS PRIVATE LIMITED PADI (T. N. ) A REPORT ON “(A STUDY ON INVENTORY MANAGEMENT IN LUCAS TVS AT PADI (T. N. )” By: Karthikeyan M. S Register No. 3511010320 Master of business Administration A report submitted in partial fulfillment of the requirements of MBA (2010-2012) SRM School of management Chennai Company Guide: Mr. Prabhakaran Mr. Raman Miss. Vijayalakshmi. Lucas TVS, Padi. DECLARATION I hereby declare that this project report “A STUDY ON INVENTORY MANAGEMENT IN LUCAS-TVS AT PADI (T.
N. )” is my own work, to the best of my knowledge and belief. It contains no material previously published or written by another person nor materials which to a substantial extent has been accepted for the award of any other degree or diploma of any other institute, except where due acknowledge has been made in the text.
Karthikeyan M S DATE: 22. 07. 2011 Register No. 3511010320 CERTIFICATE This is to certify that student’s Name Karthikeyan M S, Reg. No. 511010320, a student of Master business business management from SRM School of Management, Chennai has done his summer training at Lucas-TVS from 14 june 2011 to 14 july 2011. The project work entitled “A STUDY ON INVENTORY MANAGEMENT IN LUCAS TVS AT PADI (T. N. )” embodies the original work done by Karthikeyan M S during his summer project training period. Mr. Raman. D Company Guide ACKNOWLEDGEMENT I would like to express my gratitude to all those who gave me the possibility to complete this thesis. I would like to thank my college authorities and my H. O. D Mr.
Balasubramanian first for providing me the opportunity to work one of the most prestigious organization. I want to thank the Head of training department Mr. Prabhakaran for giving me permission to commence thesis instance, to do the necessary research work and to use department data. I have furthermore to thank the Company Guide Mr. D. Raman, who gave and confirmed this permission and encourage me to go ahead with my thesis. I am deeply in debted to my Faculty Guide Miss. Kavitha whose help, stimulating suggestions and encouragement helped me in all the times of research for and writing of thesis.
This project report could not have been prepared, if not for the help and encouragement from various people. Hence, for the same reason I would like to thank my guide Miss. Vijaya Lakshmi. My brother Mr. Shiva Prakasham looked closely at the final version of the thesis for English style and grammar, correcting both and offering suggestions for improvement. Especially, I would like to give my special thanks to my parents, my brothers their love and blessing enabled me to completete this work. LIST OF CONTENTS Sl. No| Title| Page No| 1| INTRODUCTION| | | PROFILE INDUSTRY PROFILE ORGANISATION PROFILE| | 3| STATEMENT OF OBJECTIVEOBJECTIVE OF THE STUDY NEED OF THE STUDY SCOPE OF THE STUDY LIMITATIONS OF THE STUDY| | 4| RESEARCH METHODOLOGY| | 5| DATA ANALYSIS AND INTERPRETATION| | 6| FINDINGS| | 7| SUGGESTION| | 8| CONCLUSION| | 9| BIBLOGRAPHY| | ANALYSIS OF INVENTORY MANAGEMENT IN LUCAS – TVS INTRODUCTION INTRODUCTION Inventory management involves the control of assets being produced/procured to be sold in the normal course of the firm’s operations.
The general categories of inventories include raw material, work-in-process inventories and finished goods inventory. The three categories of inventories are taken into biggest component of current assets. Inventory management is about determining and maintaining an optimal level of inventory, i. e. , a level that is neither inadequate nor excessive. Inventories constitute the most significant part of current assets for a large majority of companies in India. On an average, inventories are approximately 60 per cent of current assets in public limited companies in India.
Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore, imperative to manage inventories efficiently, in order to avoid unnecessary investment. It is possible for a company to reduce its level of inventories to be considerable degree, eg. , 10 to 20 per cent, without any adverse effect on production and sales, by using simple inventory planning and control techniques. The reduction in ‘excessive’ inventories carries a favorable impact on a company’s profitability. MEANING OF INVENTORY
Inventory represents value locked up at both ends of the production system. For a typical manufacturing firm, this blockage is in the form of raw material at one end of the production system, WIP (or semi-finished) goods within it, and completely finished goods at the other end. For example, in a trading or merchandise firm such as Big bazaar, inventory refers to the stock of finished goods for sale, while in the case of manufacturing business, the definition of inventory refers to raw materials, WIP (or semi-finished) goods, and finished goods. Thus the definition of inventories is specific to the nature of business.
All though spares and stores are also shown as a part of inventory for financial reporting purpose, they are excluded from the definition of inventory because they are procured to facilitate production/operations and not for sale. DEFINITION OF INVENTORY MANAGEMENT Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.
The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. NATURE OF INVENTORY Inventories are stock of the product a company is manufacturing for sale and components that make up the product.
The various forms in which inventories exist in a manufacturing company are: * Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions. * Work-in-process inventories are semi manufactured products. They represent products that need more work before they become finished product for sale. * Finished goods inventories are those completely manufactured products which are ready for sale.
Stocks are raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serves as a link between the production and consumption of goods. The levels of three kinds for a firm depends on the nature of the business. A manufacturing firms have substantially high levels of all three kinds of inventories, while a retail or wholesale firm will have a very high level of finished goods inventories and no raw material and work-in-process inventories. Within manufacturing firms, there will be difference.
Large heavy engineering companies produce long production cycle products; therefore they carry large inventories. On the other hand, inventories of a consumer product company will not be large because of short production cycle and fast turnover. Firms also maintain a fourth kind of inventory, supplies or stores and spares. Supplies include office and plant maintenance materials like soap, brooms oil, fuel, light bulbs, etc. These materials do not directly enter production, but are necessary for production process. Usually, these supplies are small part of the total inventory and do not involve significant investment.
Therefore, a sophisticated system of inventory control may not be maintained for them. NEED TO HOLD INVENTORIES inventories involves tying up the company’s funds and incurrence of storage and handling costs. There are three general motives for holding inventories. * Transactions motives, which emphasizes the need to maintain inventories to facilitate smooth production and sales operations. * Precautionary motives, which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Speculative motives, which influences the decision to increase or reduce inventory level to take advantage of price fluctuations. A company should maintain adequate stock of materials for a continuous supply to the factory for an uninterrupted production. It is not possible for a company to procure raw materials whenever it is needed. A time lag exists between demand for materials and its supply. Inventory examples While accountants often discuss inventory in terms of goods for sale, organizations – manufacturers, service-providers and not-for-profits – also have inventories (fixtures, furniture, supplies, … that they do not intend to sell. Manufacturers’, distributors’, and wholesalers’ inventory tends to cluster in warehouses. Retailers’ inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore impossible to control them.
While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their “goods for sale” inventory into: * Raw materials – materials and components scheduled for use in making a product. * Work in process, WIP – materials and components that have begun their transformation to finished goods. * Finished goods – goods ready for sale to customers. * Goods for resale – returned goods that are salable. FUNCTIONS OF INVENTORY MANAGEMENT: The most important functions of inventory management are * To meet anticipated demand. To smooth production requirements. * To decouple components of the production distribution system. * To protect against stock outs. * To take advantage of quantity discounts. * To hedge against price increase. PROFILE INDUSTRY PROFILE The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the world’s most important economic sectors by revenue. The term automotive industry usually does not include industries dedicated to automobiles after delivery to the customer, such as repair shops and motor fuel filling stations.
The global automotive industry is a highly diversified sector that comprises of manufacturers, suppliers, dealers, retailers, original equipment manufacturers or OEMs, aftermarket parts manufacturers, automotive engineers, motor mechanics, auto electricians, spray painters or body repairers, fuel producers, environmental and transport safety groups, and trade unions The automotive manufacturing sector consists of automobile and light truck manufacturers, motor vehicle body manufacturers, and motor vehicle parts and supplies manufacturers.
This sector is engaged in manufacturing of automotives and light duty motor vehicles, motor vehicle bodies, chassis, cabs, trucks, automobile and utility trailers, buses, military vehicles, and motor vehicle gasoline engines. The Top Automaking Nations United States, Japan, China, Germany and South Korea are the top five automobile manufacturing nations throughout the world. The United States of America is the world’s largest producer and consumer of motor vehicles and automobiles accounting for 6. million direct and spin-off jobs and represents nearly 10% of the $10 trillion US economy. Automobile is one of the important industries in the world, which provides employment to 25 million people in the wold. IN the recent past, the auto parts, the auto parts manufacturing industry of Midwest lost 12. 7% of its employment. The various factors behind this decline are unemployment recession, domestic relocation and foreign competition. This loss in employment has badly affected this industry. MAJOR MANUFACTURING REGIONS
Northeastern United States and Southern Great Lakes Region, Northwestern Europe, Western Russia and the Ukraine, and Japan are the major manufacturing regions of automotive in the world. In North America, the prominent automotive manufacturing regions are New England, New York and the Mid-Atlantic, Central New York, Pittsburgh/Cleveland, Western Great Lakes, St. Lawrence Valley, Ohio and Eastern Indiana, Kanawha and middle Ohio Valley, St. Louis, the Southeastern region, Gulf Coast, Central Florida, and the West Coast. The European Union has the largest automotive production regions in the World.
The key automobile manufacturing regions are United Kingdom, Rhine-Ruhr River Valley, Upper Rhine – Alsace – Lorraine region, and the Po Valley in Italy. In the Western Russian and Ukraine Region, the leading industrial regions are Moscow, the Ukraine region, the Volga region, the Urals regions, and the Kuznetsh Basin Region MAJOR INDUSTRY PLAYERS: The worldwide automobile industry is largely dominated by five leading automobile manufacturing corporations namely Toyota, General Motors, Ford Motor Company, Volkswagen AG, and Daimler Chrysler.
These corporations have their presence in almost every country and they continue to invest into production facilities in emerging markets namely Latin America, Middle East, Eastern Europe, China, Malaysia and other markets in Southeast Asia with the main aim of reducing their production costs. Global Automobiles and Components % Share, (By Volume 2010) * General Motors – 10. 10 % * Toyota – 7. 90 % * Ford – 7. 70 % * Others – 74. 30 % MAJOR SEGMENTS OF AUTOMOTIVE INDUSTRY: Auto components amount to 31. 5% share of the global automobiles and components industry group’s value.
The global automotive component industry is highly diverse and comprises of various product segments like engine parts, drive transmission and steering parts, suspension & braking parts, electrical parts and other auto components parts. Engine Parts segment in the automotive component industry comprises of different parts like engine parts, fuel delivery system and products such as pistons, piston rings, engine valves, carburetors, and diesel-based fuel delivery systems. Engine parts form one of largest product segment of the automotive components industry and have a production share of 31%.
The latest trend in this sector is of outsourcing a part of the engine from vendors Electrical Parts segment comprises of generators, starter motors and spark plugs. An important and relatively larger product segment – engine parts are gaining popularity at a faster pace in the global automotive parts & components industry. Electric start mechanism in different scooter and motorcycles is the latest concept in the automobile industry. Electrical parts sector contribute around 9% to the auto components industry. Drive Transmission and Steering Parts segment has sub segments like gears, wheels, steering systems, axles, and clutches.
Having 19% share, this segment is considered the largest product segment after engine parts segment. The emergence of different leading automotive manufacturers is intensifying the competition in the sector especially for products like gears and clutches. Suspension and Braking Parts segment comprises of automobile components like brakes, brake assemblies, leaf springs, shock absorbers, brake linings. Suspension and braking parts segment has around 12% share in the global auto component industry. Body and Chassis Parts segment comprises of body and chassis, sheet metal components, and plastic-molded parts.
The global sourcing of automotive components comprise of chassis, frames, brakes, steering and much more has reached to US $ 185 billion in 2009-10. This product segment has 12% share in the global automotive component and parts industry. KEY INDUSTRY DRIVERS The highlighting features of global automotive industry are: * Offers support to other industries such as iron, steel, rubber, glass, plastic, petroleum, textiles, oil & gas, paints & coatings, transportation industries. * Rising foreign investments have led to the rapid growth in terms of automobile production and exports.
Overseas companies are making huge investments and are installing extensive production capacities in developing countries. * Continuous investment in research & development has resulted in increased productivity and better quality automobiles, automotive accessories and parts. * Increase in standards of living and purchasing power parity have resulted in the increase demand of automobiles especially four-wheelers in developing nations, mostly in South Asian region. * This sector provides employment to major chunk of human population in the world i. e. 25 million.
This industry not only provides millions of jobs to the people, but also produces billions of dollars in terms of worldwide revenues. * Adequate infrastructural facilities in form of power supply, machinery, capital, ready availability of raw materials and labor help in the tremendous growth of this industry. Market Forecasts: With the upcoming marketing strategies of the manufacturers, the auto parts industry is expected to have reached a value of USD 586 billion by year 2009. According to reports, the compound annual growth rate of this industry is 2. 6% for the period of 2005 – 2010.
Global Auto Components Forecast Value – USD billion 2005 – 2010| Year| USD billion| % Growth| 2005| 515. 5| 2. 30| 2006| 526. 2| 2. 10| 2007| 538. 9| 2. 40| 2008| 553. 4| 2. 70| 2009| 569. 1| 2. 80| 2010| 585. 9| 3. 00| CAGR| 2005 – 2010 2. 6%| It is believed that by 2015, the global auto component industry would reach US$ 1. 9 trillion. With different low cost countries emerging at a fast pace in this industry, it is also expected that around 40% of the money will be sourced from such countries. India is one of such low cost countries. At present, it has only 0. 4% of the global auto components trade of US$ 185 billion.
By the year 2025, it is expected that India might be among the top five auto component economies. FUTURE OUTLOOK The automotive industry is witnessing tremendous and unprecedented changes these days. This industry is slowly and gradually shifting towards Asian countries, mainly because of saturation of automobile industry in the western world. The principal driving markets for Asian automotive industry are China, India and ASEAN nations. Low cost vehicles namely scooters, motorcycles, mopeds and bicycles have led to the massive growth of some of the fastest developing economies like China and India.
The future of automotive industry in the Asian countries such as Thailand, Philippines, Indonesia, and Malaysia is bright and promising because of the ASEAN free trade area under which the export tariffs are very less. On a global scale, the assets of the top ten automotive corporations accounts for 28% of the assets of the world’s top 50 companies, 29% of their employment and 30% of their total sales. In the year 2006, the United States of America sold around 16 million of new automobiles, Western Europe sold around 15 million, while China and India sold 4 million and one million respectively.
Latin America, Middle East, Eastern Europe, China, Malaysia and other South-Asian nations are now emerging as the dominant markets of the automotive industry. Most of the major automotive players are shifting their production facilities in these emerging markets with the main purpose of gaining better access and reduction in their production costs. There is estimation that the automotive markets in South America and Asia will witness a boom in the near future.
The various factors such as cheap financing and prices discounts, rising income levels and infrastructure developments will assist in the growth and development of automotive sector in the majority of Asian nations. ORGANISATION PROFILE ORGANISATIONAL PROFILE LUCAS – TVS was established in the year 1961 as a joint venture between Lucas industries, UK and the TVS group. It is a lending manufacturing of auto electrical products and diesel fuel injection equipment in India. This is QS 9000 & ISO 140001 certified company. It produces all types of auto electrical for two wheelers. The TVS group is one of india’s largest conglomerates.
T. V. Sundaram Iyengar and Sons Limited established in 1911 are the parent and holding company of TVS groups. The combination of these two well-known groups has resulted in the establishment of a vibrant company, which has had a successful track record of sustained growth over the last four decades. TVS is one of India’s twenty large industries houses with twenty five manufacturing companies and has a turnover in excess of US$ 1. 3billion. The turnover of Lucas-TVS and its division during 2007-2008 is Rs. 1842. 43 crores. This became the largest of its kind in the company, legendary for its punctuality and services.
In fact the rules and regulation laid by them later became the blue print for the motor vehicle act. HISTORY OF THE ORGANISATION TVS Group was established in 1911 by T. V. Sundram Iyengar, one of the visionaries of the Indian industries. His ideas were years a head of their times. Three years before World War I. When the automobile was still seen as some kind of intimidating “horse-less carriage” he had the vision to set up South India’s first ever rural bus service and over the years, this transport company became the largest of its kind in the country, legendary for its punctuality and service.
In fact, the rules and regulations laid down by him later became the print for the Motor Vehicles Act. The importance given by the founder of the TQM framework even today. T. V. Sundram Iyengar’s philosophy of business reflected the kind of man he was simple and stern. It was based rigidly on four concepts – Quality, service, reliability and a sense of Ethics. The TVS Group is the largest manufacturer and distributor of automotive components in India, with a turnover in excess of 2. 7 billion US dollars and a family of over 25,000 members.
LUCAS-TVS was established in 1961 as a joint venture between Lucas Industries, UK and the TVS Group. It is a leading manufacturer of auto electrical products and diesel fuel injection equipment in India. It reaches out to all segments of the automotive industry such as passengers cars, commercial vehicles, tractors, jeeps, two wheelers and off-highway vehicles, as well as for stationary and marine applications. Lucas-TVS was for sometime a part of UK and Varity Corporation of US. Now Lucas-TVS is fully owned by the TVS group MISSION:
To be a respected supplier in the global auto industry, by developing innovative products and solution of value to customers through creative skill and involvement of employees, suppliers and dealers and use of contemporary technology. VISION: * To be the supplier of choice of all leading vehicle manufacturing in India. * To be a recognized Original Equipment Supplier in Asia Pacific and Middle East markets. * To achieve global recognition for innovative approach to products and solutions. * And, by 2010, to sell Rs. 2000 crores (USD 430) of products and solutions.
The milestone in the journey of LUCAS-TVS as it has emerged today are listed: * Lucas-TVS today has emerged as a total automobile electrical system supplier, operating from four plants located at Chennai, Pondicherry, Pune and Rewari in Haryana. * The electrical division of Lucas-TVS manufactures a complete range of auto electrical products – namely starters, alternators, wipers, and distributors, making it a “one-stop shop” for the automotive industry. * Currently the company produces over 2. 5 million starters and alternators per annum, and has plans to double the volume.
Lucas-TVS has grown hand in hand with the automobile industry in the country. The company’s policies have recognized the need to respond effectively to changing customer needs, helping to propel it to a position of leadership. The company has raised its standards on quality, productivity, reliability, and flexibility by challenging its interests. At present, there are five divisions: Divisions| Turn-Over Crores INR| During 2008 – 2009Million USD| Auto Electrical L-TVS| 958. 29| 239. 75| Fuel Injection Equipment(FIE)-DTVS| 465. 30| 116. 41| Electronic Ignition System (INEL)| 120. 3| 30. 08| Automotive Lighting (IJL)| 132. 92| 33. 25| After Market Operations(LIS)| 165. 69| 41. 45| LUCAS-TVS GROUP OF COMPANIES: » Delphi-TVS. » Lucas India Service. » Indian Nippon Electricals Ltd. » Indian Japan Lighting. TVS Group Companies: The TVS Group, with turnover of over one billion dollars, is the largest manufacturers of automotive components in India. The group produces auto electrical, diesel fuel injection systems, automotive wheels and axle fasteners, powder metal components, radiator caps, two wheelers and computer peripherals.
Backed by five service and distribution companies with an extensive network cross the country, the group has the largest distribution network for automotive products in India. COMPANY| PRODUCTS| Manufacturing Companies| Automotive Axles| Axles India Ltd. | Automotive Axles. | Brakes Ltd. | Hydraulic brakes & clutch actuation systems. | India Nippon Electricals Ltd. | Magnetos, Two/Three wheeler ignition systems. | India Japan Lighting Limited. | Headlamps, Rear combination lamps and various other signal lamps for automotive and Two wheelers applications. Lakshmi Auto components Ltd. | Engine/transmission components. | Lucas-TVS Ltd. | Auto electrical| TVS Srichakra Ltd. | Automotive tyres. | Sundaram Brake Linings Ltd. | Brakes linings & clutch facings. | Delphi-TVS Ltd. | Diesel fuel injection equipment. | Sundaram Clayton Ltd. | Air brakes| Sundaram Fasteners Ltd. | High tensile fasteners, cold extruded products, sintered components, intelligent system, radiator caps. | Sundaram Textiles Ltd. | Yarn| Turbo Energy Ltd. | Turbo charges| TVS Interconnected Systems Ltd. | Electronic connectors| TVS Electronics Ltd. Computer peripherals| TVS Sewing Needles Ltd. | Sewing needles. | TVS Motor Company Ltd. | Two wheelers. | TVS cherry Ltd. | Precision miniature, sub-miniature, selector switches, hall effect sensors, key switches and advanced performance/special purpose keyboards. | Wheels India Ltd. | Automotive wheels| Distribution Companies| | India Motor Parts & Accessories Ltd. | Distributors of automotive components. | Lucas India Service Ltd. | Distributors of auto electrical and auto components, Fuel Injection Equipment, LISPART & Batteries. | T V Sundaram Iyengar & sons Ltd. Distributors of passengers cars commercial vehicles, automotive spare parts. | Other companies| | Southern Roadways Ltd. | Freight services. | Sunco machines Ltd. | Precure tyre retreading equipment| Sundaram Industries Ltd. | Tyre retreading, coach building, rubber components. | QUALITY POLICY: “Lucas TVS is committed to achieving ever increasing levels to customer satisfaction through continuous improvements to the quality of the products and services. It will be the company’s Endeavour to increase customer trust and confidence in the label “Made in Lucas TVS”.
Quality is no longer an option but as a basic requirement in today’s world. At Lucas TVS, quality in inbuilt in every phase of manufacture. The company’s quality assurance measures stand on the foundation of a solid belief – that quality and ends with the customer. This commitment forms the backbone of its approach to Quality Assurance. Lucas TVS has adopted a prevention-oriented quality policy through ingrained with the traditional ideas of quality control. Everyone from the highest levels of the organization to the lowest practice quality control both as an individual and as a team.
An effective Quality Control System has resulted in the recognition of the company’s outstanding achievements in the various fields. Lucas TVS was awarded the ISO 9001 certified by BVQL in December 1993. The company reached a further milestone when it recently received a certificate of recognition from BVQL for ISO 9000 Auto Electricals. Lucas TVS has bagged the Rajiv Gandhi National Quality Award for 2006. This award is for the category “large scale manufacturing industry”. LUCAS-TVS CUSTOMER NAMES: 1. CARS: MARUTI UDYOG TATA MOTORS HYUNDAI MOTORS FORD INDIA
HINDUSTAN MOTORS WEST INDIA POWER EQUIPMENT FIAT INDIA GENERAL MOTORS 2. COMMERCIAL VEHICLES: TATA MOTORS BAJAJ AUTO FORCE MOTORS TATA CUMMINS LTD ASHOK LEYLAND M & M JEEP SWARAJ MAZDA 3. TRACTORS: M & M PUNJAB TRACTOR LTD TRACTORS AND FARM EQUIPMENTS HMT LIMITED ESCORTS EICHER L & T 4. ENGINES: KIRLOSKAR OIL ENGINES SIMPSONS TATA CUMMINS INDIA LTD GREAVES COTTON INDIA LTD LOMBARDINI 5. TWO WHEELERS: TVS MOTORS COMPANY LTD BAJAJ AUTO LTD SOORAJ AUTO LTD SCOOTERS INDIA LTD HERO HONDA HONDA MOTOR CYCLES AND SCOOTERS INDIA YAMAHA INDIA DEPARTMENTATION:
Department can be defined as the process by which activities or function of the company of the company are grouped homogeneously into different group’s departmentation is very important as it give ways for division of labor specialization and to have check on time which is very much needed for company. Features Of Departmentation: The following are the features of departmentation * Departmentation leads to specialization of jobs. As there are separated * department for each job E. g. Sales, purchase, services etc. which enable to focus his attention on a narrow aspect of the work more efficiently. Division-of-work enables specialization which results in early completion of job and saves the time of the person. * Each department has their heads that are accountable for the results so it helps in easy supervision of the work done. Various Department Of The Company: * PurchaseDepartment * MarketingDepartment * ProductionDepartment * FinanceDepartment * PersonnelDepartment * SecretarialDepartment Function of Finance Department: The following are the function of finance department, * To estimate the finance requirement of fixed and working capital * To measure the earning and saving to the best advantage of the company. To take decision regarding borrowing of funds or utilization of own funds for purpose of investment. * To maintain the books of accounts the company. * To prepare budget and financial statement of the company and control. This department has many sub-sections: * PAY ROLL * BILLS RECEIVABLE * BILLS PAYABLE * CASH, BANKING AND LEGAL * TAXATION AND LEGAL * COSTING, BUDGET AND CAPEX * MATERIAL ACCOUNTING * INTERNAL AUDIT * M. I. S OBJECTIVES OBJECTIVES From the problem taken for the study the following objectives have been considered. Primary Objective: The primary objective is to know how efficiently the inventory is managed in Lucas-TVS.
Secondary Objective: To study and find the effectiveness of ABC analysis in Lucas-TVS. * To classify the inventory scientifically. * To exercise control over important items by way of ABC analysis. * To help eliminate unnecessary inventory held in stock and thereby reducing funds locked in them. SCOPE OF THE STUDY SCOPE OF THE STUDY As in reality every study has a scope of achieving the exact happenings to match with possible change for betterment. * To implement the findings to benefit part of the functions of inventory department in Lucas-TVS. * To verify the knowledge of text book in practice To derive meaningful application of theory from actual implementation. RESEARCH METHODOLOGY RESEARCH METHODOLOGY The research is an attempt to study a problem or a situation at any given circumstance and identify various causes or consequences of that particular problem. It tries to solve a complex and complicated problem through use of various tools and techniques. These tools and techniques try to bring out a logical, accurate and scientific solution to a given problem. Methodology as the name suggests is the method through which the problem or situation is tackled. It involves a lot of factor like the research design, tools used, etc…. ll these steps and factors put together to bring out a clear and accurate result. RESEARCH DESIGN A research is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. The research design adapted in the study was descriptive study. DATA COLLECTION METHOD Data collection has mainly been from two sources viz. , primary data and secondary data. PRIMARY DATA: The primary data are the information which is collected a fresh and for the first time and thus happen to be original in character. In this project we didn’t use any primary data.
SECONDARY DATA: Secondary data, are those which have already been collected by some others and already been processed. TOOLS USED: 1. Ratio analysis 2. ABC Analysis Ratio Analysis: It is the process of establishing and interpreting various for helping in making certain decisions. It is used as a device to analyses and interprets the financial health of the company. This is done to develop meaningful relationship between individual items or group of items usually shown in a periodical financial statement publish by the concern. The commonly used ratios to assess inventory are as follows * Sales to Inventory Raw Materials to Total Inventory * Work in progress to Total Inventory * Finished Goods to Total Inventory * stock turnover ratio ABC ANALYSIS: The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. It stands for Always Better Control. Policies based on ABC analysis: A ITEMS: very tight control and accurate records B ITEMS: LESS TIGHTLY CONTROLLED and good records C ITEMS: simplest controls possible and minimal records. The ABC analysis suggests that inventories of an organization are not of equal value.
Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance. ‘A’ items are very important for an organization. Because of the high value of these ‘A’ items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e. g. ‘Just- in- time’) to avoid excess capacity. ‘B’ items are important, but of course less important, than ‘A’ items and more important than ‘C’ items. Therefore ‘B’ items are intergroup items. ‘C’ items are marginally important. DATA ANALYSIS AND INTERPRETATION 1. RATIO ANALYSIS I.
TABLE OF TOTAL INVENTORY (in crores): Year| Raw material| Work in progress| Finished goods| Total inventory| 2005-2006| 33. 62| 17. 89| 19. 30| 70. 81| 2006-2007| 54. 11| 21. 32| 18. 05| 93. 48| 2007-2008| 67. 08| 27. 48| 23. 80| 118. 36| 2008-2009| 86. 23| 38. 60| 24. 10| 148. 93| 2009-2010| 130. 81| 38. 33| 29. 62| 198. 76| Interpretation : It is inferred that for the year 2005-2006, 2006-2007, 2007-2008, 2008-2009, 2009-2010, the total inventory value has been increased. II. Ratio between sales to inventory (in crores): Year| Sales (x)| Inventory (y)| x/y| 2005-2006| 547. 94| 70. 81| 7. 74| 2006-2007| 639. 25| 93. 8| 6. 84| 2007-2008| 712. 66| 118. 26| 6. 02| 2008-2009| 806. 59| 148. 93| 5. 41| 2009-2010| 902. 57| 198. 76| 4. 54| Interpretation: it is inferred that the ratio of sales and inventory for the year 2004-2005 is 7. 74. the ratio of sales and inventory is high in the year 2004-2005 (7. 74) and low in the year 2008-2009 (4. 54). III. Ratio between Raw material to Total inventory (in crores): Year| Raw material (x)| Total inventory(y)| x/y| 2005-2006| 33. 62| 70. 81| 0. 475| 2006-2007| 54. 11| 93. 48| 0. 578| 2007-2008| 67. 08| 118. 36| 0. 567| 2008-2009| 86. 23| 148. 93| 0. 579| 2009-2010| 130. 81| 198. 76| 0. 58| Interpretation; It is inferred that the ratio of sales and inventory for the year 2005-2006 is 0. 475. The ratio of sales and inventory is high in the year 2009-2010 (0. 658) and low in the year 2005-2006 (0. 475) IV. Ratio between Work in progress to Total inventory (in crores): Year| Work in progress (x)| Total inventory (y)| x/y| 2005-2006| 17. 89| 70. 81| 0. 253| 2006-2007| 21. 32| 93. 48| 0. 228| 2007-2008| 27. 48| 118. 36| 0. 232| 2008-2009| 38. 60| 148. 93| 0. 259| 2009-2010| 38. 33| 198. 76| 0. 193| Interpretation: It is inferred that the ratio of sales and inventory for the year 2005-2006 ia 0. 53. The ratio of sales and inventory is high in the year 2008-2009 (0. 259) and low in the year 2009-2010. V. Ratio between Finished goods to Total inventory (in crores): Year| Finished goods (x)| Total inventory (y)| x/y| 2005-2006| 19. 30| 70. 81| 0. 273| 2006-2007| 18. 05| 93. 48| 0. 193| 2007-2008| 23. 80| 118. 36| 0. 201| 2008-2009| 24. 10| 148. 93| 0. 162| 2009-2010| 29. 62| 198. 76| 0. 149| Interpretation: It is inferred that the ratio of sales and inventory for the year 2005-2006 is 0. 273. The ratio of sales and inventory is high in the year 2005-2006 and low in the year 2009-2010 (1. 9) VI. Stock Turnover Ratio (in crores): Year| Cost of goods sold| Average stock | Ratio| 2005-2006| 490. 87| 18. 35| 26. 75| 2006-2007| 576. 31| 15. 50| 37. 18| 2007-2008| 612. 80| 28. 98| 21. 14| 2008-2009| 693. 68| 19. 30| 35. 94| 2009-2010| 862. 30| 32. 45| 26. 57| Cost of goods sold Stock turnover ratio = Average stock Interpretation: It is inferred that the stock turnover ratio for the year 2005-2010 is 26. 75. the ratio of sales and inventory is high in the year in the year 2006-2007 (37. 18) annnd low is the year 2007-2008 (21. 14). 2. ABC ANALYSIS ANNUAL USAGE VALUE OF PRODUCT “X”
S NO| DESCRIPTION| ANNUAL USAGE (in lakhs)| % OF USAGE| 1| Spindle unit Assembly (1)| 65. 50| 7. 259132| 2| Brush, Plate, Plug, Switch, Cover, Assembly| 35. 00| 3. 878926| 3| Cover Assembly| 94. 54| 10. 47753| 4| Spindle unit Assembly (2)| 42. 50| 4. 710124| 5| Gear Boxing| 37. 07| 4. 108336| 6| Mounting Bracket Assembly| 80. 25| 8. 893822| 7| Wiping System| 142. 01| 15. 73846| 8| Assembly Bracket| 32. 23| 3. 571936| 9| Wheel Box Assembly| 25. 36| 2. 810559| 10| Link End Assembly| 21. 50| 2. 382769| 11| Limit Switch| 16. 00| 1. 773223| 12| Shaft Link & Pin Assembly| 17. 50| 1. 939463| 13| Bundy Tube| 12. 0| 1. 385331| 14| Brush Plate| 18. 00| 1. 994876| 15| Brush Plate Cover| 25. 52| 2. 828291| 16| Primary Tube Assembly| 14. 89| 1. 650206| 17| Gear Box Assembly| 23. 90| 2. 648752| 18| Ball Bearing| 13. 80| 1. 529405| 19| Thermal Cut| 14. 52| 1. 6092| 20| Shaft Assembly| 14. 28| 1. 582602| 21| Brush Plating Assembly| 24. 85| 2. 754037| 22| Rear Mounting Bracket| 16. 16| 1. 790955| 23| Washer| 0. 41| 0. 045439| 24| Steel Ball| 0. 63| 0. 069821| 25| Screw | 0. 31| 0. 034356| 26| Bolt| 0. 99| 0. 109718| 27| Nut| 0. 48| 0. 053197| 28| Pressure Pad| 0. 18| 0. 019949| 29| Spring Clip| 0. 16| 0. 017732| 0| Con & Bush Assembly| 0. 57| 0. 063171| 31| Felt Washer| 0. 12| 0. 013299| 32| Ferrule| 1. 96| 0. 21722| 33| Label| 0. 65| 0. 072037| 34| Switch Unit| 0. 64| 0. 070929| 35| Final Gear Assembly| 3. 40| 0. 37681| 36| Bearing Bush| 3. 11| 0. 34467| 37| Magnet| 4. 51| 0. 499827| 38| Pole| 5. 90| 0. 653876| 39| Commutator| 1. 56| 0. 172889| 40| Primary Link Assembly| 2. 72| 0. 301448| 41| Carbon Brush| 1. 10| 0. 121909| 42| Rotatory Link| 4. 80| 0. 531967| 43| Bearing Pin| 2. 62| 0. 290365| 44| Rubber Pad| 1. 43| 0. 158482| 45| Armature Insul| 1. 21| 0. 1341| 46| Bundy Tube With Nut| 5. 00 | 0. 554132| 7| Crank Pin| 1. 22| 0. 135208| 48| Crank Plate| 2. 61| 0. 289257| 49| Spindle | 6. 14| 0. 680474| 50| Needle Bearing| 6. 09| 0. 674933| 51| Plug Moulding| 3. 99| 0. 442198| 52| Nozzle Holder| 1. 09| 0. 120801| 53| Self Tap Screw| 1. 00| 0. 110826| 54| Screw Cover Plate| 0. 16| 0. 017732| 55| Lock Nut| 0. 48| 0. 053197| 56| Spring Washer| 0. 535| 0. 059292| 57| Circlip | 0. 635| 0. 070375| 58| Rivet| 0. 4625| 0. 051257| 59| Seal | 0. 94| 0. 104177| 60| Protection Cover| 0. 605| 0. 06705| 61| Breather Plug| 0. 50| 0. 055413| 62| Thrust Screw| 0. 975| 0. 108056| 63| Gasket| 1. 685| 0. 186743| 64| Trust Pad| 0. 65| 0. 029369| 65| Yoke| 35. 5892| 3. 944225| 66| Bundy Tube With Nut| 5. 00| 0. 554132| | Total | 877. 00| 100| A ITEMS: S. NO| DESCRIPTION| VALUE (in lakhs)| Percentage| 1| Spindle unit assembly| 65. 5| 7. 468643| 2| Brush, Plate,Plug, Switch, Cover,Assembly| 35| 3. 990878| 3| Cover Assembly K 200 M| 94. 54| 10. 77993| 4| Spindle Unit Assembly| 42. 5| 4. 846066| 5| Gear Boxing (Hyundai)| 37. 07| 4. 22691| 6| Mouinting Bracket Assembly| 80. 25| 9. 150513| 7| Wiping System (Indica)| 142. 01| 16. 1927| 8| Assembly bracket| 32. 23| 3. 675029| 9| Wheel Box Assembly| 25. 36| 2. 891676| 10| Brush Plate Assembly| 25. 2| 2. 90992| 11| Gear Box Assembly| 23. 9| 2. 7252| 12| Brush Plating Assembly| 24. 85| 2. 833523| | Total| 628. 73| 71. 69099| B ITEMS: SNO| DESCRIPTION| VALUE (in lakhs)| Percentage| 1| Link end assembly| 21. 50| 2. 451539| 2| Limit switch| 16. 00| 1. 824401| 3| Shaft link &pink assembly| 17. 50| 1. 995439| 4| Bundy Tube| 12. 50| 1. 425314| 5| Brush plate| 18. 00| 2. 052452| 6| Primary tube assembly| 14. 89| 1. 697834| 7| Ball bearing | 13. 80| 1. 573546| 8| Thermal Cut| 14. 52| 1. 655644| 9| Shaft link pin assembly| 14. 28| 1. 628278| 10| Yoke | 16. 29| 1. 857469| 11| Rear mounting bracket| 16. 16| 1. 42645| | Total| 175. 44| 20. 00456| C ITEMS: S NO| DESCRIPTIONS| VALUE (in lakhs)| Percentage | 1| Washer| 0. 41| 0. 04675| 2| Steel ball | 0. 63| 0. 071836| 3| Screw| 0. 31| 0. 035348| 4| Bolt| 0. 99| 0. 112885| 5| Nut| 0. 48| 0. 054732| 6| Pressure pad| 0. 18| 0. 020525| 7| Spring clip| 0. 16| 0. 018244| 8| Con & bush assembly| 0. 57| 0. 064994| 9| Felt washer| 0. 12| 0. 013683| 10| Ferrule| 1. 96| 0. 223489| 11| Label| 0. 65| 0. 074116| 12| Switch unit| 0. 64| 0. 072976| 13| Final gear assembly| 3. 4| 0. 387685| 14| Bearing bush| 3. 11| 0. 354618| 15| Magnet| 4. 51| 0. 514253| 16| Pole| 5. 9| 0. 72748| 17| Commutator| 1. 56| 0. 177879| 18| Primary link assembly| 2. 72| 0. 310148| 19| Carbon bush| 1. 1| 0. 125428| 20| Rotatory bush| 4. 8| 0. 54732| 21| Bearing pin| 2. 62| 0. 298746| 22| Rubber pad| 1. 43| 0. 163056| 23| Armature insul| 1. 21| 0. 13797| 24| Bundy tube with nut| 5| 0. 570125| 25| crank pin| 1. 22| 0. 139111| 26| Crank plate| 2. 61| 0. 297605| 27| Spindle| 6. 14| 0. 700114| 28| Needle bearing| 6. 09| 0. 694413| 29| Plug moulding| 3. 99| 0. 45496| 30| Nozzle holder| 1. 09| 0. 124287| 31| Self tap screw| 1| 0. 114025| 32| Lock nut| 0. 48| 0. 054732| 33| Spring washer| 0. 535| 0. 61003| 34| Circlip| 0. 635| 0. 072406| 35| Rivet | 0. 4625| 0. 052737| 36| Seal| 0. 94| 0. 107184| 37| Protective cover| 0. 605| 0. 068985| 38| Breather plug| 0. 5| 0. 057013| 39| Thrust screw| 0. 975| 0. 111174| 40| Gasket| 1. 685| 0. 192132| 41| Thrust pad| 0. 265| 0. 030217| 42| Screw cover plate| 0. 33| 0. 037628| | Total | 74. 0125| 8. 439282| ABC ANALYSIS Interpretation: The above raw material has been categorized as “A” class material and should be kept under rigorous control as the investment in the inventory constitute more than 70% value of the total investment made in raw material inventory.
The company should direct its most of the inventory control efforts to the items included in the category. Although the number of items which constitutes “B” & “C” category is not fairly large investment in these category is less than 30% and which is less than category than 30% and which warrant the minimum attention. During the discussion and clarification with the executives of the company controlling production and stores we were explained that the raw material which were grouped under “B” & “C” category even though critical to the production process were availability easily.
While making the analysis utmost care was taken not to include raw material essential for production process which is not available easily in the market even though it involves small investment in “B” & “C” category. FINDINGS AND SUGGESTION FINDINGS * The total inventory of the company has been increased from one year to another year. For example the total inventory for the year 2005-2006 is 70. 81 whereas it has been increased to 198. 76 in the year 2009-2010. * In ABC analysis, the A category constitutes more than 70% of the total investment made in the raw materials.
B and C category is not fairly large investment in this category is less than 30 % and which warrant the minimum attention. * The ratio between raw material and total inventory is low in the year 2005-2006 (i. e. , 0. 475%) and it has been increased to 0. 685% in the year 2009-2010. * The ratio between work in progress and total inventory has been fluctuating for the last five years. * The ratio between finished goods and total inventory is high in the year 2005-2006 is 0. 273% and it has been decreased to 0. 149% in the year 2009-2010. * During the year 2005-2006 it is 26. 75% whish shows higher position of sales but the last two years i. ,. 2008-2009 and 2009-2010 the sales has been decreased. SUGGESTIONS * The total inventory of the company is high. So, the company should take the initiative for the proper utilization of inventory. * The management should find out the reasons for the decrease in sales and must take appropriate measures. BIBIOGRAPH BOOKS: * I. M. Pandey, Financial Management, Vikas Publication, New Delhi, 10th Edition, 2003 * Rajiv Srivastava, Financial Management, Oxford University Press, New Delhi. WEBSITE: * www. lucas-tvs. com * www. automotive-online. com/auto-industry. html * http://en. wikipedia. org/wiki/ABC_analysis