Inventory Management at Hero Motocorp ltd

A PROJECT REPORT “INVENTORY MANAGEMENT” AT

“HERO MOTOCORP LTD.”

MASTER OF BUSINESS ADMINISTRATION Submitted by:

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ACKNOWLEDGEMENT

“Accomplishment of a task with desired success calls for dedication towards work and prompting guidance, co-operation and deliberation from seniors.” This report is the outcome of the project that I did in Hero Motocorp Ltd. It gives me immense pleasure to acknowledge my deep sense of gratitude and sincere thanks to Mr. M. S. Arora (Manager, Store) and to Mr. Rajender Pal (Executive Store) for agreeing for the project and providing me necessary information for completion of project. I am extremely grateful to Mr. _____________________ for his valuable guidance and glorious teaching. In last, I express my profound gratefulness and indebtedness to the esteemed organization for granting me the grand privilege of working on a project under team of experts and professionals in the field of inventory.

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PREFACE MBA program is one of the most reputed professional courses in the field of management. This course includes both theory and its applications as its content of curriculum. The project is an integral part of the curriculum and its purpose is to provide the practical exposure of business world in the changing scenario. In this way it helps the student in development of practical skills and analytical thinking process. It helps in moldings the students according to the requirement of the market. Each student is required to complete the project in his or her field of interest

The purpose of the project is to expose the students on practical and research front of his or her area of interest. The project gives a unique experience to aspirants who can visualize things what they have been taught in classroom. I was fortunate enough to have the opportunity to do a project on inventory management at Hero Motocorp Ltd.

I have tried my best and have applied all my efforts, knowledge and sources available, in this project. Throughout the project the focus has been on presenting information and comments in easy and intelligible manner.

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TABLE OF CONTENT Chapter

Content

No. 1

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Executive Summary Theoretical Framework of Inventory Management Introduction Meaning and Nature of Inventory Purpose/Benefits of holding inventory Risk and Cost of holding inventory Inventory Control Importance of inventory Control Essential of good Inventory Control Techniques of Inventory Control Objective and Research Methodology Objective of the Study Research Methodology Sources of Data Collection Limitations Company Profile Introduction Vision Mission Strategy Manufacturing Distribution Product portfolio Process Flow chart Inventory Management at Hero Motocorp Ltd. Material Management Cycle

Functional Strategies/ Objectives of inventory management at Hero Motocorp Purchase Control Purchase Procedure 4

Page No.

Process of Receipt of Material Storage control Objective of stores Divisions of Store Accounting Control Valuation of material issue Classification of inventory Tools and Techniques of Inventory Management Estimation of different cost of holding inventory Estimation of Stock Levels of super

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splendor Inventory ratios Findings Suggestions Bibliography

EXECUTIVE SUMMARY To be successful in today's fast-paced, highly-competitive environment, organizations need to have the necessary parts in stock or have reliable suppliers to meet customer

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demands at a moment's notice. Either way, organizations must have a practical, efficient method for managing inventory in order to stay in business and satisfy their customers. Effective Inventory Management enables an organization to meet or exceed customers' expectations of product availability while maximizing net profits or minimizing costs. The three primary functions that characterize the occupation are management, coordination, and control of inventory and systems of inventory management. Management of inventory records and relevant details is an important area of concern for every organization, whether it is large or small. And also calls for efficient planning and maintenance. No matter the viewpoint, effective inventory management is essential to supply chain competitiveness.

Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory. It deals with the maintenance of equipments. It is a discipline that encompasses the principles, concepts and techniques for determining what to order, when to order and how much to order. The right amount of inventory involves the balance between what is required to service customers and what is financially practical. Precise control and safeguarding of inventory is an essential task for a successful, well-organized company. Businesses require timely and accurate information on inventory location, movement, and valuation. Inaccurate inventory counts can cost you sales and delay shipments past the promise date. Out-of stock items as well as overstocked items in inventory can be devastating to business. Additionally, an

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overstated or understated inventory valuation can result in incorrectly reported assets within financial statements. Properly used, the Inventory Management module can help bring about the formulation of new or improved purchasing policies, sales policies, pricing methods, and even enhanced customer service. This project is about inventory management system of Hero Motocorp Ltd. Project starts with theoretical framework of inventory management, its benefits, inventory management techniques and valuation of inventory. Second chapter deals with objective and research methodology. Third chapter is about company profile, its products, mission, vision etc. Forth chapter is about the inventory management at Hero Motocorp. How company manages its inventory and what are the inventory control techniques used by the company were studies in this chapter. Suggestions were made to improve efficiency of the inventory management. I have used both primary as well as secondary data.

CHAPTER -1 THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT 7

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.,

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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 over-stocking 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-

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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 nonavailability

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PURPOSE/BENEFITS OF HOLDING INVENTORY Another important element in the determination of optimum inventory level, relates to the benefits of holding inventories. Inventories perform certain basic functions which are of very much importance in firm’s production and marketing strategies. According to JOHNSON R.W. (Financial management) the basic function of inventories to act as a buffer to decouple or uncouple the various activities of a firm so that all do not have to be pursued at exactly the same rate. The term uncoupling means that the key activities of a firm viz., purchasing, producing and selling, which are closely interrelated, can be carried on independently. If inventories are not held, purchasing and production would be completely controlled by the sales schedule. If sales increase, the need for purchase and production will increase and vice versa. But, if inventories are held, each activity can be carried out independently and efficiently. The following are the benefits of holding inventory. 1. Benefits in purchasing: If the purchasing is carried on independently i.e. without up to production or sales, the firm can purchase large quantities than is warranted by usage in production or the sales levels. This will enable the firm to get certain advantages. Firstly, the bulk purchasing enables the firm to get trade discounts. Secondly, ordering costs can be minimized by placing fewer orders for a large amount. Thirdly, large inventory serves as a hedge against increasing prices. Fourthly, bulk purchasing also provides a hedge against labour trouble. 2. Benefits in production: The basic objective of holding finished goods inventory is to separate production and sales activities. This enables the firm to undertake production at a rate different and sales at different rate. If the firms demand is seasonal in nature, management has to courses open. First it can produce production when sales are high and reduce production when sales or low. Second, it may produce continuously throughout the year and build up inventory which will be sold during the period of seasonal demand. 11

The former involves discontinuity in production while the latter ensure stabilized production. Many advantages acquire from stabilized production. a) Improved worker morale and possibly greater efficiency. b) Reduced peak-load production and fewer overtime charges. c) Reduction of certain costs which result from idle equipment. d) Certain economies made possible through the purchase of raw materials. 3. Benefits in sales: The maintenance of inventories enables the firm to enhance its sales efforts. If the firm has no inventory of finished goods, its level of sales will depend upon its current production level. The firm may not be able to meet the demand instantaneously had the customers may switch to other firms who can supply at short notice. Thus, the objective of inventory management relate to the minimization of inventory on the one hand and the need to ensure sufficient inventory to assure continuity of production and sales operations. Thus, both the objectives of inventory management conflict with each other. The optimum level of inventory should be determined in terms of trade off between costs and benefits associated with inventory management.

RISK AND COSTS OF HOLDING INVENTORIES The holding of inventories involves blocking of firm’s 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 firm’s 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,

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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 customer’s tastes etc.

◈ Inventory control: A firm needs an inventory control system to effectively manage its inventory. There are several inventory control systems in vogue in practice. They range from simple systems to very complicated systems. The nature of business and the size dictate the choice of an inventory control system .For example; a small firm may operate a twobin-system. Under this system, the company maintains two bins. Once inventory in one bin is used, an order is placed, and means while the firm uses inventory in the second bin .For a larger departmental store that sells hundreds of items, this system is quite unsatisfactory. The departmental store will have to maintain a self-operating, automatic computer system for tracking the inventory position of various items and placing order. The main objective of inventory control is to achieve maximum efficiently in production and sales with the minimum investment in inventory.

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◈ Importance of inventory control:

The importance or necessity of inventory control is well explained in terms of the objects of inventory control which are obtained through it. A proper inventory control lowers down the cost of production and improves the profitability of the enterprise. Here are certain specific advantages of inventory control: 1) Reduction in Investment in Inventory. 2) Proper and efficient use of raw material. 3) No bottleneck in production. 4) Improvement in Production and Sales. 5) Efficient and optimum use of physical as well as Financial Resources. ESSENTIAL OF GOOD INVENTORY CONTROL SYSTEM: 1) Classification and codification of inventories by allotting proper code number to each item and group and regroup on some basis. 2) Standardization and simplification of inventories in order to maintain quality and reduce the number of items. 3) Adequate storage facility. 4) Setting different levels and reorder point for each item of inventories. 5) Fixing Economic Order Quantity. 6) Experienced personnel for handling inventories properly. 7) Intelligent and experienced Personnel. 8) Co-ordination. 9) Budgeting. 10) Internal Check. The inventory includes stock of raw materials, semi-finished goods, finished goods and components etc. of several descriptions. In order facilitate prompt recording, locating and dealing, each item of inventory should be assigned a particular code for proper identification and must be divided in groups on basis of location, nature of item, plant etc.

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Techniques of inventory control Effective inventory management requires an effective control system of 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 important techniques of inventory control. 1. Setting of various stocks levels. 2. ABC analysis. 3. Two bin system. 4. Establishment of system of budgets. 5. Use of perpetual inventory records and continuous stock verification. 6. Determination of Economic Order Quantity (E.O.Q). 7. Review of slow and non-moving items. 8. Use of control ratios. 1.

Setting of various stocks level: Carrying of too much little of inventories is determined to the firm, if the

inventory level is too little the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up to capital. Therefore, an efficient inventory management requires that a firm should maintain an optimum level of inventory costs are the minimum and at a same time there is not stock out which may result in loss of sale or stoppage production of various stock levels are discussed as such. Re-ordering level: It is the point at which if stock of a particular material in store approaches, the storekeeper should initiate the purchase requisition for fresh supplies of that material. This level is fixed somewhere between the maximum and minimum levels in such a way that the difference of quantity of the material between the re-ordering

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level and the minimum level will be sufficient to meet the requirements of production up to the time the fresh supply of the material is received. Re-ordering level can be calculated by applying the following formula. Re-ordering level =Maximum Consumption x Maximum re-order period. Or Re-ordering level = Safety stock + [Average daily consumption X Average delivery period] Where: Safety stock= Annual Demand X [Maximum lead time –– Normal lead time] 365 Minimum level: It indicates the lowest figure of inventory balance, which must be maintained in hand at all times, so that there is no stoppage of production due to non-availability of inventory. The main consideration for the fixation of minimum level of inventory is as follows: 1) Information about maximum consumption and maximum delivery period in respect of each item to determine its re-order level. 2) Average rate of consumption for each inventory item. 3) Average delivery period for each item. This period can be calculated by averaging the maximum and minimum period. The formula used for its calculation is as follows: Minimum Level of inventory = Re-order level – [Normal consumption X normal re-order period ] Maximum level: It represents the maximum quantity of an item of material which can be held in stock at any time. Stock should not exceed this quantity. The quantity is fixed so that there may be no overstocking. The maximum stock level is fixed by taking into account the following factors. ♦ Amount of capital available for maintaining stores. ♦ Godown space available.

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♦ Maximum requirement of the stores for production purposes at any point of time. ♦ Rate of consumption of the material during the lead time. ♦ The time lag between indenting and receiving of the material. ♦ Possibility of loss in stores by deterioration, evaporation etc. ♦ Cost of maintaining stores. ♦ Likely fluctuation in prices. ♦ The seasonal nature of supply of material. Certain materials are available only during specific periods of the year, so these have to be stocked heavily during these periods. ♦ Restrictions imposed by the government or local authority in regard to material in which there are inherent risks e.g. fire and explosion. ♦ Possibility of change in fashion and habit which will necessitate change in requirement of materials. Maximum level of inventory= Reorder level + Reorder quantity –– [Minimum consumption X minimum reordering period] Average stock level: The average stock level is calculated by the following formula: Average stock level = Minimum stock level + [1/2 of re-order quantity] Danger level: When the stock level falls below the minimum level, it reaches the danger level, when immediate action is to be taken for replenishment of stock. Danger level= Average consumption X lead time for emergency purposes. 2. Stock control through ABC analysis: Manufacturing organization find it useful to divide materials into three categories for the purposes of exercising selective control on materials.

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An analysis of the material costs will show that a smaller percentage of items of materials in the stores may contribute to a large percentage of the value of consumption and, on the other hand, a large percentage of times may represent a smaller percentage of the value of items consumed. Items falling in the first category are treated as “A” items, of the second category as “B” items and items of the third category are taken as “C” items. Such an analysis of material is known as ABC analysis. This technique of stock control is also known as stock control according to value method or always better control method or proportional parts value analysis method .Thus, under this technique of material control, materials are listed in ‘A’, ‘B’and ‘C’ categories in descending order based on money value of consumption. ABC analysis measures the cost significant of each item of material. It concentrates on important items. So it is also known as “control by Importance and Exception” (C.I.E). The report of the INDIAN productivity Team on “Stores & Inventory control in U.S.A, JAPAN and WEST GERMANY” gives the following example of ABC analysis: Category A B C Total

% of Items 15 35 50 100 ABC analysis of inventory items

% of Value 80 15 5 100

The significant of this analysis is that a very close control is exercised over the items of ‘A’ group which account for a high percentage of costs while less stringent control is adequate for category ‘B’ and very little control would suffice for category ‘C items. Advantages: A strict control is exercised on the item which represents a high percentage of the material costs. Managerial time is spent on ‘A’ items whereas ‘C’ items and sometimes ‘B’ items can be handled by clerical staff with least managerial supervision. 1) Investment in inventory is reduced to the minimum possible level because a responsible quantity of ‘A’ items representing a significantly portion of the material costs is purchased. To reduce investment in materials, close control ‘A’ items contributes much more than close control of ‘C’ items.

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2) Storage a cost is reduced as a reasonable quantity of materials, which account for high percentage of value of consumption will be maintained in the stores. 3. Two bin system: Under this system each bin is divided into two parts– one, smaller part, should stock the quantity equal to the minimum stock or even the re-ordering level, and the other to keep the remaining quantity. Issues are made out of the large part; but as soon as it becomes necessary to use quantity out of the smaller part of the bin, fresh order is placed. “Two bin systems” is supplemental to the record of respective quantities on the bin card and the stores ledger card. 4. Establishment of system of budgets:

To control investment in the inventories, it is necessary to know in advance about the inventories requirement during a specific period usually a year. The exact quantity of various types of inventories and the time when they would be required can be known by studying carefully production plans and production schedules. Based on this, inventories requirement budget can be prepared. Such a budget will discourage the unnecessary investment inventories. 5. Use of perpetual inventory records and continuous stock verification: Perpetual inventory system: Under this system a continuous record of receipt and issue of materials is maintained by the stores department and the information about the stock of material is always available. CIMA defines perpetual inventory system as “the recording as they occur of receipts, issues and the resulting balances of individual items of stock in either quantity or quantity and value.” In this system the entries are made in bin cards and stores ledger as and when the receipts and issues of materials take place and ascertaining the balance after every

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receipt or issue of materials. The stocks as per the dual records namely bin card and stores ledger are reconciled on a continuous basis. Advantages: ♦ This system avoids the disruptions to production or trading caused by the periodic stock taking. ♦ This system facilitates production planning and inventory control. ♦ Perpetual inventory system is efficiently maintained with continuous stock taking. ♦ The perpetual inventory system avoids the necessity of stock taking by actual at the end of financial period. ♦ Stock can be taken for the purpose preparation of profit and loss account and balance sheet. ♦ It helps in having a detailed and more reliable check on the stocks. ♦ The stocks records are more reliable and stock discrepancies are investigated and appropriate actions are taken immediately. Periodic stock taking system: Under this system the stock levels are reviewed at fixed intervals e.g. at the end of every month or three months. All the items of stocks in the store are reviewed periodically. CIMA defines periodic stock taking as “a process whereby all stock items are physically counted and then valued.” The aim of periodic stock taking is to find is to find out the physical quantities of materials of all types are physically counted at a given date. ♦ A team of stock checkers should be allocated to count all stock in one area, to ensure that all stock is counted once, and that no omission or duplications occur. ♦ In the office, the completed stock sheets should be collated and totaled, and the quantities checked against the stock records. ♦ Senior staff or auditors should perform sample checks on a number of items. ♦ All staff involved should be issued with stock taking instructions well before the date of the actual count. Often non-stores staff ill be involved in the count.

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♦ Any stocks showing discrepancies should be recounted, and if still not resolved should be reported to management. ♦ Stock checkers should enter amounts counted on preprinted stock sheets. ♦ A ‘cut-off’ time should be set, after which no movement of stock is allowed until the count has been completed. 6.

Determination of Economic Order Quantity (E.O.Q): The total costs of a material usually consist of: Total acquisition cost + Total ordering cost + Total carrying cost. Total acquisition cost through buying is usually unaffected irrespective of the quantity of material ordered at one time unless quantity discounts are available. The quantity of materials to be ordered at one time is known as economic ordering quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and carrying the stock. Carrying costs: It is the cost of holding the materials in the store and includes: ♦ Cost of storage space which could have been utilized for some other purpose. ♦ Cost of bins and racks that have to be provided for the storage of materials. ♦ Cost of maintaining the materials to avoid deterioration. ♦ Amount of interest payable on the money locked up in the materials. ♦ Cost of spoilage in stores and handling. ♦ Transportation costs in relation to stock. ♦ Cost of obsolescence on account of some of the materials becoming obsolete after some time of storage either due to change in the process or product. ♦ Insurance cost. ♦ Clerical cost etc. Ordering cost: It is the cost of placing orders for the purchase of materials and includes: 1) Cost of staff posted in the purchasing department, inspection section and payment department. 2) Cost of stationery, postage and telephone charges.

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E.O.Q =

2UO C

Where EOQ = economic order quantity. U = consumption of the material concerned in units during a year. O = Cost of placing one order including the cost of receiving the Goods i.e. cost of getting an item into the firm’s inventory. C = holding costs of inventory O.U per year Assumptions: 1) There are dynamic conditions of the supply which enable a firm to

ace as

many orders as it needs. 2) Prices of the item remain stable which keep carrying cost constant. 3) The quantity of the item to be consumed during a particular period is totally known i.e. quantity to be consumed is certain. 7. Review of slow and non-moving items: Sometimes, due to high value of slow moving and non-moving raw materials, it appears that the concern has blocked huge sum of money unnecessarily in raw materials. To overcome this problem, it is necessary to dispose –off as early as possible, the non-moving items or make arrangements for their exchange with the inventories required by the concern. Besides this no new requisition should be made for the purchase of slow moving items, till the existing stock is exhausted. Computation of inventory turnover ratio may help in identifying slow moving items. 8. VED Analysis: VED–– vital, essential and desirable–– analysis is used primarily for control of spare parts. The spare parts can be divided into three categories–– vital, essential or desirable keeping in view the criticality of production. The spares, the stock-out of which even for a short time will stop production for quite some time and where the cost of stock out is very high, are known as vital spares, the spares, the absence of which cannot be tolerated for more than a few hours or a day and the cost of lost production is high and which are essential for the production to 22

continue, are known as essential spares. The desirable spares are those spares which a are needed but their absence for even week or so will lead to stoppage of production. Some spares, though negligible in monetary value, may be vital for the production to continue and require constant attention. Such spares may not receive the attention they deserve if they are maintained according to ABC analysis because their value of consumption is small. So, in their cases, VED analysis is made to get the effective result. 9. Input – Output Ratio: Input-Output ratio is used in material control, which indicates the relation between the quantity of material used in the production and the quantity of final output. For example, if 500 units of material is introduced into the process or operation and the yield of final product is 400 units, the Input-output ratio is calculated as follows: Input – Output Ratio = Input Units / Output x100 Advantage: The advantage of analysis of input-output ratios is given below: ♦ It helps in material planning by estimation of output and its raw material requirement. ♦ The standard input-output ratio act as guide in control of materials used in the process by minimization of waste, scrap, spoilage and defectives. ♦ It acts as a performance indicator of particular production cost centers. ♦ It helps the management in investigation and analysis of any variation is material usage by establishing relation between input and output. ♦ The cost-benefit analysis of use of different substitutes of raw material is possible by comparing each of the input-output ratios. 10. Stock turnover ratio: The stock turnover ratio indicates the movement of average stock holding of each item of material in relation to its consumption during the accounting period. The stock turnover ratio is calculated by applying the following formula. Cost of materials used during the period Average stock of materials used during the period

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By comparing the number of days in the case of two different materials, it is possible to know which is fast moving and which is slow moving. On this attempt should be made to reduce the amount of capital locked up, and prevent over-stocking of the slow moving items.

CHAPTER -2 OBJECTIVE AND RESEARCH METHODOLOGY OBJECTIVE OF THE STUDY  To study inventory management system of Hero Motocorp Ltd.  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.  To evaluate the process of supply chain management.  To analyze whether JIT (just in time) system can be implemented or not.

 To understand the problems faced by company in handling inventory.  To give suggestions relating to efficient utilization of inventories in Hero Motocorp Ltd.

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RESEARCH METHODOLOGY Any of the above systematic and scientific research lies in its methodology giving a clear idea of the forms of study and procedure adopted in conducting it and stating the purpose become essential parts of every study. Here, In this Project research design used is Exploratory type.

SOURCES OF DATA COLLECTION Primary data will be collected through interview of official staff. At the same time other departments will also be visited. They are as follows:♣ Main Cash Department ♣ Billing and Operation Department ♣ Excise Department. ♣ Sales Department Secondary data will be collected through

 ♣ Annual Reports ♣ Inventory Reports ♣ Cash Report

♣ Raw Materials Report ♣ Production Reports ♣ Sales Reports ♣ Financial Year Book. ♣ Magazines, Books and Website of the company.

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LIMITATIONS: 1)

This project is restricted to study purpose only and can be used keeping in view the object that is made for.

2)

The respondent in the project may not reveal important / confidential information pertaining to the company policy and for this the project should be used keeping in view the said limitation.

3)

Finding of the study will be based on the assumptions that respondents have given correct information.

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CHAPTER -3 COMPANY PROFILE Introduction Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two - wheelers, based in India. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and also, the 'World No.1' two-wheeler company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd. continues to maintain this position till date.

VISION The story of Hero Honda began with a simple vision - the vision of a mobile and an empowered India, powered by its two wheelers. Hero MotoCorp Ltd., company's new identity, reflects its commitment towards providing world class mobility solutions with renewed focus on expanding company's footprint in the global arena.

MISSION Hero MotoCorp’s mission is to become a global enterprise fulfilling its customers' needs and aspirations for mobility, setting benchmarks in technology, styling and quality

so

that

it

converts

its

customers

into

its

brand

advocates.

The company will provide an engaging environment for its people to perform to their true potential. It will continue its focus on value creation and enduring relationships with its partners.

STRATEGY Hero MotoCorp’s key strategies are to build a robust product portfolio across categories, explore growth opportunities globally, continuously improve its

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operational efficiency, aggressively expand its reach to customers, continue to invest in brand building activities and ensure customer and shareholder delight.

MANUFACTURING Hero MotoCorp two wheelers are manufactured across 3 globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of Uttrakhand.

DISTRIBUTION The Company's growth in the two wheeler market in India is the result of an intrinsic ability to increase reach in new geographies and growth markets. Hero MotoCorp’s extensive sales and service network now spans over to 6000 customer touch points. These comprise a mix of authorized dealerships, service & spare parts outlets, and dealer-appointed outlets across the country.

Product portfolio 1. Karizma ZMR

KARIZMA ZMR

2. Karizma

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KARIZMA

3. Impulse

IMPULSE

4. Xtreme

XTREE

5. Hunk

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6. Ignitor

IGNITOR

7. Maestro

8. Pleasure

PLEASURE

9. Super Splendor

SUPER-SPLENDOR

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10. Splender Pro

11. Splender Plus

SPLENDOR-PLUS

12. Splender -NXG

SPLENDOR-NXG

13. Passion XPRO

PASSION-XPRO

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14. Passion Pro

PASSION-PRO

15. HF-Deluxe

HF-DELUXE

16. HF-Dawn

HF-D

17. Glamour Programmed Fi

GLAMOUR PROG

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18. Achiever

ACHIEVER

19. Glamour

Process Flow Chart: Process flow chart for are existing to meet the production planning.

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CHAPTER – 4 INVENTORY MANAGEMENT AT HERO MOTOCORP LTD. Logistics /Materials Management is considered one of the vital service functions that helps in bringing down the working capital requirement and hence, the cost of production through reduction of interest burden.

Also, it would help to make

available capital for alternate productive purposes.

◈ Materials Management Cycle : Broadly, the Inventory Management System comprises of •

Material Planning

•

Purchasing

•

Formulating delivery schedules

•

Receipts and inspection

•

Storage & issues

•

Re-allocation of available stocks among various stores/users

•

Identification of Obsolete and unusable inventory

•

Disposal of used items / scrap

It is needless to say that judicious Planning, Organizing, scheduling and monitoring of various activities is essential at every stage to ensure that inventories are maintained at optimal level and avoid stock out situations. In real time, the subject becomes complex, as it has got inter-relationship with the production system, which is dynamic due to both internal and external factors. Thus, integration of Materials Management System with the production system and supply chain management is essential to achieve the desired results.

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Functional Strategies/ Objectives of inventory management at Hero Motocorp: a) Evolve and implement a scientific inventory control system to achieve optimization of inventory levels. b) Standardize and improve equipment design. c) Create and sustain computer culture. d) Bring more common items under centralized procurement system to get better control. e) Preservation of materials to avoid damages/ deterioration during storage. f)

Improvement in purchase procedure for reduction in procurement leadtime.

Inventory management at Hero Honda was divided into three broad areas 1. PURCHASE CONTROL 2. STORAGE CONTROL 3. ACCOUNTING CONTROL

1. PURCHASE CONTROL ● The Purchase procedure

1. Requisition to purchase The indenters from various departments will raise requisition called the Material Purchase Request for purchase. It should be insured that the requisition for purchase should be completed in all respects with regard to, •

Each item of purchase shall have a precise, complete and unambiguous identification. Indenting department is responsible for identification of items in its indents. Identification shall include the generic name of the material as

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recognized commercially and physical dimensions (weight, size, volume, capacity and other technical specifications) and code number as relevant. •

Required date of delivery

•

Estimated value and approved budget head

•

Whether the item is a stock item/non-stock item/capital item

The stores section will raise the requisition for purchase of materials, which have been declared as stock item, after the quantity in stock has reached the ‘reorder level’ as determined for the respective items. Such requisition amongst other particulars should also indicate the ‘maximum’, ’minimum’ and ‘re-order’ level, the date on which last supply was received and the average consumption per month since last purchase.

The requisition for purchase non-stock items will be invariably routed through the stores section that will endorse on the requisition the availability/ non-availability. In case the item is available, the quantity thereof is indicated on the purchase requisition so that the quantity to be purchased can be adjusted by the head of the purchase dept. in consultation with the indenters. The finance & Account dept. would ensure that the purchase requisition must indicate: a) The budget provision b) The amount utilized / committed up to the previous requisition c) The estimated value of the present requisition (by departmental head), and d) The balance available under the budget head after booking the present requisition.

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2. Quotation from different vendor On receipt of the requisition from the various indenting departments, enquiries shall be issued by the purchase dept. to find out different vendors for particular material. Quotation from different vendor is invited. Normally, the lowest Quotation, which conforms, to the specifications will be accepted. However, where the lowest bid even though it conforms to the specifications is not accepted, full justification for accepting other than the lowest bid shall be recorded in writing and approval of the competent authority will be obtained.

3. Confirmation of Purchase Order: Purchase order is given to the lowest quotation on agreed terms and condition.

Lead Time: The purchase time indicates the lead-time i.e. time taken to physically receive the material from the date of its indent. Current lead time of the company is 15 days.

PROCESS OF RECEIPT OF MATERIALS Goods are received By the security

personnel

Entry is made in the Gate Inward Register (‘GI’)

Stores informs QC about GI Register manually reconciled the receipt ofisgoods and samples Stores Executive prepares Physical verification is conducted withare thecontractual GRN byand Stores to collected forlabour testing theprepared GRN against by ensure Supervised that goods recorded 37 theallPO created in SAP in by are Stores SAP

Daily

Monthly Process

STORAGE CONTROL: The procurement action of stock items is initiated by store. Normally working hours of store is general shift hours. However, in case of shut down, emergency service of stores is made available as requested by user department. OBJECTIVE OF STORES To render materials, services to the organization by receiving, issuing the spare parts, preserving the spares in custody, disposing the scrap/ surplus materials. The objective is achieved through following function. Stores function is basically a service function. The main functions of the stores are: 1)

To receive all types (Stock and Non-Stock) materials, to arrange inspection of materials.

2) To keep materials safe custody, issue of materials to service and maintenance department. 3) To initiate action for procurement of stock items, to keep in custody and issue to service department. 4) Disposal of Non-moving item, surplus item, and scraps item. 5) Implement stores related policies and functions. 6) Coordinating with other departments for stores related activities. 7) To maintain records/ files of all stores activities, issue vouchers, stores receipt vouchers (SRV), stock adjustment vouchers (SAV), material exception reports (MER), claims/ dispatch advice etc.

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DIVISONS OF STORE: Store department is also divided into three sections: •

RECEIPT SECTION

•

CUSTODY SECTION

•

DISPOSAL SECTION

RECEIPT SECTION Main Functions of receipt section; •

To arrange copies of purchase order/work order and amendments thereof for ready reference.

•

Receiving of materials – checking and arranging for inspection.

•

Documentation – SRV (Store Receipt Voucher)

•

Handling over of accepted materials to custody section

•

Accounting / segregation of rejected material.

•

Follow up with handling contractor and transporter

•

Processing bills for services availed.

CUSTODY SECTION Main function of section; 1. Codifying all the items with 9+1 digit code structure. 2. Receiving & posting of “accepted materials” against SRV and storing at proper location 3. Preservation of material during storage period. 4. ‘Stock Verification’ reconciliation of stock with management approval. 5. Issue of material to the service and maintenance department as and when required.

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6. Maintenance of records and accounting for each transaction. 7. Verification of “Material statement” for the material issued against various ‘work orders’ 9. Preparation of MPRs for ‘stock controlled’ items. 11. Review and fixing of ‘stock level’ for “stock control items”. 12. Housekeeping of the entire covered area under stores

STORES FLOW DIMAGRAM Receiving of materials

Return of rejected materials

from Hero Honda Ltd.

to Hero Honda Ltd.

Receipt Section Return of material through ISRV

-Inspection of material.

MPR for stock

-SRV

item to purchase

-Accepted material.

Custody Section

Issue of material to User Dept.

Handing over surplus material for disposal

The preservation

to Disposal sec.

of material

Disposal section

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PROCEDURE FOR RECEIVING THE ACCEPTED MATERIAL IN CUSTODY SECTION A) The materials are received in custody section through two sources mainly. •

From receipt section through SRV and;

•

From user dep’t through ISRV (Material once drawn from stores and not consumed can be returned to custody till it is further required for consumption).

1) If the material is received through SRV, i) SRV for receipt of accepted material will be checked for special remarks for storage condition (if any) & taken into custody. ii) The appropriate location for the material will be selected/arranged. iii) The material will be shifted to the selected place of its storage. iv) The material will be “stock charged” i.e. taken into account by posting in computer. 2) If material is received through ISRV, i) SIV reference no. & date (when this material was drawn). ii) Reasons of return. iii) % Value of material indicated by user or not. iv) If it is repaired & returned to stores. v) Condition of material. B) Quantity mentioned in ISRV is checked with quantity received by stores.

PROCEDURE

FOR

RECONCILIATION

STATUS

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OF

INVENTORY

It is a system for identifying the unwanted inventory and the deviation in physical stocks for reconciliation of the stock and maintaining the accuracy in “management reporting system” for inventory status. All items in stocks are to be physically verified once in a year so that necessary adjustments can be made in stocks after obtaining necessary approvals from competent authority.

PROCEDURE 

Every item will be verified under perpetual type of “inventory verification system” once in a year.



The finance department will prepare the group wise list of the items.



On hand quantity against the individual item will be noted with their respective location.



The physical stock is then verified with the representative of stores dep’t.



The deviation will be checked, scrutinized and sorted out.



The final list of unsettled item with deviation in quantity will be prepared.



Management approval for write-off / write on the stock is obtained.



Stock is adjusted through a voucher- SAV

PROCEDURE FOR MATERIAL ISSUE



Materials are issued within the specified time period i.e. 9.00 AM to 12.00 noon. In case of emergency, materials can be issued depending upon the merit of the case.



Materials are issued against SIV format signed by authorized persons.



SIV will be checked.



Indication for type of transaction will be checked on SIV



Quantity on hand and location of the item will be noted on the SIV for respective item.



Quantity to be issued is decided based on type of material required.

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•

If required materials is “stock item”, then quantity issued is depending on stock available.

•

If required material is “non-stock” item, it can be issued full (i.e. equal to demanded quantity).

•

If required material is material is from “reserved material category”, then it can be issued to maximum quantity kept reserved for that particular dep’t.



Material will be issued for the decided quantity-obtaining signature & name of the drawer for its physical receipt.



Quantity issued for the item will be posted to update the stock position.

DISPOSAL SECTION The various function of disposal section; •

To receive surplus material, scrap, unserviceable stores.

•

It is ensured that scrap materials are properly located / stored for fetching good price.

•

Coordinating activities of declaring items as surplus / obsolete, fixing of reserve price for their disposal and obtaining management approval for their final disposal.

• Accounting Control Inventories are the assets of a company and such as their valuation get reflected in the balance sheet and profit and loss account. These can be valued at actual, at the last price paid, on the basis of an average price, current market price, and so on. A company may adopt a particular method of inventory valuation, but it is obligatory to follow it for a minimum period of three years. Any changeover to a new method requires the approval of the board.

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Inventories measured by money value usually constitute the major element in the working capital of manufacturing companies. Only proper stores accounting procedure can successfully achieve control of inventory. A good system of stores accounting is found to be necessary for certain other purposes like: a) Preparation of accurate cost accounts b) Evaluation of purchase performance c) Working out important management ratio like sales to inventory, consumption to inventory, purchase to inventory, inventory turnover etc. d) Preparation of materials budget When a material is purchased, received, inspected, and placed in the stores, an entry is made about the purchase through a Goods Receipt Voucher. The entry for the quantity received is simple, but the entry for the value of a purchase is a vexed problem because the value is the sum of a number of items like: a) Invoice price b) Sales tax/ octroi c) Excise duty/ custom duty d) Insurance e) Freight, carriage, handling charges etc. The goods receipt voucher is priced from the appropriate invoice and the material account is debited in the stores ledger.

•

Valuation of the Material Issue

The method of valuation followed in Hero Motocorp Ltd. is the weighted average pricing mechanism. In this method the total quantities and total costs are considered, unlike simple average method where only total costs are considered. This pricing mechanism is quite advantageous as the price is fixed for a particular period say for one month and the system takes care of price fluctuations.

•

Preparation of Bin Cards

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Bin card is a quantitative stock ledger. It shows the on-line stock position. Whatever any basic document relating to movement of stores (SIV, SRV, SAV etc) is punched into system, automatic-posting goes into Bin-Card . •

Pricing of Receipts (SRV)

The custody section sends SRV to finance for purpose of pricing. Finance prices the SRV on the basis of terms and conditions of the purchase order and bill of vendor. SRV for which bills are not received from the vendor are valued provisionally at the month end. Preparing a SR amendment voucher does adjustments for variation in value. •

Pricing of Issues (SIV)

Issues are valued on monthly weighted average basis. The issue of material or spare will be valued at monthly weighted average method. •

Preparation of Price Store Ledger (PSL)

The PSL is an item wise stores ledger. It shows both quantity and value.

CLASSIFICATION OF INVENTORIES: -

The materials are classified into 2 they are

1. ABC analysis 2. XYZ analysis 1) ABC ANALYSIS:-

For ‘A’ class items Hero motocorp use direct online (DOL). A class parts are purchased daily They purchase ‘A’ items from local vendors. Some of the A class items includes Chasis, Aluminum, Ferro, liners, back spares, etc. 45

B class parts are purchased up to 4 days. B class items are spring, stickers, rubber components, plastics etc C class parts are purchased up to 7 days or 10 days. C class items are wires, nut bolts etc.

ABC classification for the year 2012-13 is tabulated below: ABC Class

Criteria

No. of material

Cumulative consumption value ( in

A

70%

of 219

lac) 75.25

of 937

21.54

of 9080

10.76

consumption B

value 20% consumption

C

value 10% consumption value

10236

107.56

A class item having criteria 70% consumption value has 219 items and value of 75.25 lacs. These items are required to be ordered frequently to reduce capital locked up in inventory. They should also have low safety stock and strict control. These items should be handled by senior staff. B class item having criteria 20% consumption value has 937 items and value of 21.54 lacs. These items require only periodic follow up and have moderate safety stock. They need moderate control.

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C class item having criteria 10% consumption value has 9080 items and value of 10.76 lacs. These items require exceptional follow up and high safety stock and require lose control.

TOOLS

AND

TECHINIQUES

OF

INVENTORY

MANAGEMENT, WHICH COMPANY IS ADOPTING: ♣ KAN BAN ♣ JIT ♣ MILK RUN CONCEPT ♣ TWO BIN SYSTEM

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-intime (J.I.T) production and ordering systems which allow them to minimize their inventories while still satisfying customer demands. In Hero Motocorp, 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 47

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 (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 long-term 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. 48

Advantages: •

Economical transportable lot(minimum transportation cost per piece)

•

No inventory carrying cost at plant and at warehouse.

•

It is direct online system

•

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

Estimation of different costs of holding Inventory: 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 Hero Motocorp ltd, the spare parts are procured from the places like Delhi, noida, Mumbai, pune, nashik and banglore etc. and the cost is incurred by procuring the spare parts form vendor’s place to the company i.e. manufacturing unit. 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% of the basic price of the spare parts on an average.

CARRYING COST: -

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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 Super Splendor: NOTE:- HERE IAM CONSIDERING ONLY SUPER SPLENDOR 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: Maximum –

600 units.

Normal

–

480 units.

Minimum –

390 units.

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 Hero Motocorp 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.

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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 “SUPER SPLENDER” for calculation purpose. Normal daily consumption = 480units. Normal reorder period = Reorder level =

2.5weeks.

1800 units.

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 shortage 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.

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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 It is calculated as: Minimum stock level = 600units Re-ordering quantity = 2000 units. Average stock level = minimum stock level + ½ of re-ordering quantity. =600 + (1/2 x 2000) =1600 units.

INVENTORY RATIOS:

1.

Inventory turnover ratio

Inventory turnover ratios are calculated to indicate whether inventories have been used efficiently or not.

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Year

Sales

2011

Average Inventory

5,30,67,62,000

2012

5,31,16,92,000

2013

5,92,32,04,000

Inventory turnover ratio

44,34,50,000

11.97

56,39,00,000

9.48

61,14,44,000

9.69

Inventory TurnoverRatio 14 12 10 8 6 4 2 0 2011

2012

2013

Interpretation This ratio shows how rapidly the inventory is turning into receivable through sales. The inventory turnover ratio is 11.97 in 2011. It is decreased up to 9.48 in 2012 and it is 9.69 in 2013. The above analysis shows that the inventory management is very efficient throughout the period of study. Compared to 2011, ITR shows decreasing trend. But still it didn’t decrease to great extent. Hence we can say company’s having tight inventory control system.

2. Year

Inventory holding period Days

Inventory turnover ratio

53

Inventory turnover ratio ( in days )

2011

365

11.97

30

2012

365

9.48

39

2013

365

9.69

38

Inventory Holding Period 45 40 35 30 25 20 15 10 5 0 2011

3. Year

2012

Raw material turnover ratio

2011

Annual Consumption of raw material 3,30,12,19,000

2012

3,56,19,13,000

2013

2013

3,89,52,11,000

Average raw material inventory

Raw material turnover ratio

25,07,20,000

13.17

33,91,15,000

10.50

32,12,74,000

12.12

54

Raw Material Inventory Turnover Ratio 14 12 10 8 6 4 2 0 2011

4. Year 2011 2012 2013

2012

2013

Finished goods inventory turnover ratio Cost of goods sold 5,30,67,62,000 5,31,16,92,000 5,92,32,04,000

Average Inventory of finished goods

Finished goods turnover ratio

6, 99, 32,000

75.88

11, 49, 46,000

46.21

13, 77, 54,000.5

42.99

55

Finished Goods Inventory Turnover Ratio 80 70 60 50 40 30 20 10 0 2011

2012

2013

CHAPTER – 5 FINDINGS

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

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 The minimum stock level that Hero Motocorp Ltd. 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 i 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 Hero Motocorp Ltd.

 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 Hero Motocorp Ltd. 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.

CHAPTER - 6

SUGGESTIONS

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 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 shortage of 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 overall costs.  Proper codification leads to maximum cost control.  Finally I suggest that Hero Motocorp Ltd. should continue in using the high Japanese technology .

CHAPTER -7

BIBILIOGRAPHY

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 FINANCIAL MANAGEMENT - PRASANNA CHANDRA  COST ACCOUNTING - S. N. MAHESHWARI  COST ACCOUNTING - VARSHINI & SAXENA

 INVENTORY MANAGEMENT - Bhagirath Singh.

Websites:  www.heromotocorp.com

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