A STUDY ON INVENTORY MANAGEMENT IN LUCAS-TVS PVT LTD,

CHENNAI.

A PROJECT REPORT

Submitted by

T.V. BABU RAJ

(Reg. No. 1065712)

In partial fulfillment for the requirements for the award of the degree

IN

MASTER OF BUSINESS ADMINISTRATION

OF

ANNA UNIVERSITY OF TECHNOLOGY

Submitted to

DEPARTMENT OF MANAGEMENT STUDIES

SAKTHI MARIAMMAN ENGINEERING COLLEGE

[Affiliated To Anna University Approved by AICTE]

NARAYANASWAMY NAGAR,

55, THANDALAM, CHENNAI– 602 105

August-2011

BONAFIDE CERTIFICATE

This is to certified that this project report titled ”A STUDY ON I INVENTORY

MANAGEMENT IN LUCAS-TVS PVT LTD,CHENNAI” is the bonafide work of

Mr. T.V. BABU RAJ (Registration Number: 1065712) who carried out the research

under my supervision. Certified further, that to the best of my knowledge the work

reported herein does not form part of any other project report or dissertation on the basis

of which a degree or award was conferred on an earlier occasion on this or any other

candidate.

Mr. C. Ganesan Dr. SITA NEELAKANTAN

Internal Guide Head of the Department

Submitted to Project and Viva Examination held on ____________

Internal Examiner External Examiner

DECLARATION

I hereby declare that the project entitled ”A STUDY ON INVENTORY

MANAGEMENT IN LUCAS-TVS PVT LTD, CHENNAI”. submitted in partial fulfillment

of requirements for the award of the degree of MASTER OF BUSINESS

ADMINISTRATION, to ANNA UNIVERSITY OF TECHNOLOGY is my original work

and not submitted for the award of any other degree, diploma or other similar title or prizes.

Date:

(T.V. BABU RAJ)

Place

ACKNOWLEDGEMENT

I express my sincere thanks and sense of gratitude to my respected Chairman Thiru.K.N.RAMACHANDRAN for having granted permission to do the project work.

It’s with real pleasure that I record my indebtedness to my Principal Dr.K.VIJAYA BHASKAR RAJU for extending his support to complete my project report.

My most sincere thanks are due to my respected HOD Dr.SITA NEELANKANTAN who has given her valuable suggestions and guidance for successful completion of this project.

My sincere thanks to my internal guide, Mr.C.GANESAN who has given his valuable suggestions and guidance for successful completion of this project.

I am indebted to Mr.R.EMPERUMAN Personal officer of Lucas-tvs pvt ltd company, for having granted permission to undergo this project and extended his valuable guidance as and when required.

I wish to thank our department staff Mrs.M.KAVITHA, Mr.E.IYYAPPAN, Mr.P.MURUGAN, Mr.A.GOKULAKRISHNAN, Mr.A.RADHAKRISHNAN. for their guidance and cooperation in the completion of the project work.

I am obligated to all the respondents without whom I could not have completed this survey. My thanks to all of them with whom I had interacted.

I wish to thank my beloved parents, friends, senior students and those who have helped me directly or indirectly to complete the project work successfully.

TABLE OF CONTENTS

CHAPTER PARTICULARS PAGENO

NO

List of tables

List of charts

Abstract

1

INTRODUCTION

1.1 Introduction

1.2 Company Profile

1.3 Identified problem

1.4 Need for study

1.5 Objectives of the study

1.6 Scope of the study

1.7 Deliverables

2

LITERATURE SURVEY

2.1 Review of literature

2.2 Research Gap

3

RESEARCH METHODOLOGY

3. 1 Type of project

3.2 Objectives of the study

3.3 Constraints and limitations

3.4 Data collecting method

3.5 Tools for Analysis

4 DATA ANALYSIS AND INTERPRETATION

5 FINDINGS SUGGESTIONS AND CONCLUSION

5.1 Summary of findings

5.2 Suggestions and Recommendations

5.3 Conclusions

APPENDIX

Bibliography

LIST OF TABLES

CHART NO TITLE PAGE NO

4.1 Economic Order Quantity

4.2 ABC Analysis

4.3 Inventory Turnover Ratio

LIST OF CHARTS

CHART NO TITLE PAGE NO

4.1 Economic Order Quantity

4.2 ABC Analysis

4.3 Inventory Turnover Ratio

ABSTRACT

Every organization need inventory for smooth running of its activities. It serves as a link

between production and distribution process. The investment in inventories constitutes the most

significant part of current assets/working capital in most of the undertaking. 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. Raw materials, goods in process and finished goods

all represent various forms of inventory.

Each type represents money tied up until the inventory leaves the company as purchased

products. Because of the large size of the inventories maintained by firms, a considerable amount

of funds is required to be committed to them. It is therefore absolutely imperative to manage

inventories efficiently and effectively in order to avoid unnecessary investments. A firm

neglecting the management of inventories will be jeopardizing its long run profitability and may

fail ultimately carriers a favorable impact on the company’s profitability.

The project work was undertaken was intended as “LUCAS-TVS LTD”, Padi. The study

consists of ABC analysis and the bin card system of the last 5years to know about the

performance of the company.

The empirical study conducted about inventory is an analytical research covering year

2006-2010.

In the last part findings, Suggestions, conclusions are given for the analysis have been

used for analyze the financial soundness of the company.

CHAPTER-1

1.1 INTRODUCTION

Inventory control is vitally important to almost every type of business, whether product

or service oriented. A proper balance must be struck to maintain proper inventory with minimum

financial impact on the customer. Inventory control is the activities that maintain stock keeping

items at desired levels. In manufacturing since the focus is on physical product, inventory control

focus on material control.

MEANING OF INVENTORY MANAGEMENT:

Inventory means physical stock of goods which is kept in hands for smooth and efficient

running of future affairs of an organization at the minimum cost of funds blocked in inventories.

The fundamental reasons for carrying inventory is that it is physically impossible and

economically impractical for each stock item to arrive exactly where it is needed exactly when it

is needed.

Inventory management is the integrated functioning of an organization dealing with

supply of materials and allied activities in order to achieve the maximum co-ordination and

optimum expenditure on materials. Inventory control is the most important function of inventory

management and it forms the nerve center in any inventory management organization. An

inventory management system is an essential element in an organization. It is comprised of a

series of processes which provide an assessment of the organisation’s inventory.

Inventory generally refers to the materials in stock. It is also called the idle resource of a

company. Inventories represent those items which are either stocked for sale or they are in the

process of manufacturing or they are in the form of materials which are yet to be utilized.

Inventory is a detailed list of those movable items which are necessary to manufacture a

product and to maintain the equipment and machinery in a good working order.

TYPES OF INVENTORIES

A manufacturing firm generally carries the following types of inventories:

RAW MATERIALS

Raw materials are inventory items that are used in the manufacturer’s conversion process

to produce components, subassemblies or finished products. These inventory items may be

commodities or extracted materials that the firm or its subsidiary has produced or extracted.

They also may be objects or elements that the firm has purchased from outside the organization.

Even if the item is partially assembled or is considered a finished goods to the supplier, the

purchaser may classified it as a raw material if his or her firm had no input into its production.

Typically, raw materials are commodities such as minerals, petroleum, chemicals, paper, wood,

paint, steel and food items. However, items such as nuts and bolts, ball bearing, key stock,

casters, seats, wheels, and even engines may be regarded as raw material if they are purchased

from outside the firm.

WORK-IN-PROCESS

Work-in-process(WIP) is made up of all the materials, parts (components), assemblies,

and subassemblies that are being processed or are waiting to be processed within the system.

This generally includes all materials from raw materials that have been released for initial

processing up to material that has been completely processed and is awaiting final inspection and

acceptance before inclusion in finished goods.

Any item that has a parent but is not a raw material is considered to be work-in-process.

A glance at rolling cart product structure tree example reveals that work-in-process in this

situation consists of tops, leg assemblies, frames, legs, and casters.

FINISHED GOODS

A finished good is a completed part that is ready for a customer order. Therefore,

finished goods inventory is the stock of completed products. These goods have been inspected

and have passed final inspection requirements so that they can be transferred out of work-in-

process and into finished goods inventory. From this point, finished goods can be sold directly to

their final user, sold to retailer, sold to retailer, sold to wholesalers, sent to distribution centers, or

held in anticipating of a customer order.

Any item that does not have a parent can be classified as finished good. By looking at the

rolling cart product structure tree example one can determine that the finished good in this case is

a cart.

Inventories can be further classified according to the purpose they serve. These types include

transit inventory, buffer inventory, anticipation inventory, decoupling inventory, cycle inventory,

and MRO goods inventory. Some of these also are know by other names, such as speculative

inventory, safety inventory, and seasonal inventory. We already have briefly discussed some of

the implications of a few of these inventory types, but will now discuss each in more detail.

TRANSIT INVENTORY

Transit inventories result from the need to transport items or materials from one location

to another, and from the fact that there is some transportation time involved in getting from one

location to another. Sometimes this is referred to as pipeline inventory. Merchandise shipped by

truck or rail can sometimes take days or even weeks to go from a regional warehouse to a retail

facility. Some large firms, such as automobile manufactures, employ freight consolidates to pool

their transit inventories coming from various location into one shipping source in order to take

advantage of economies of scale. Of course, this can greatly increase the transit time for these

inventories, hence an increase in the size of the inventory in transit.

BUFFER INVENTORY

As previously stated, inventory is sometimes used to protect against the uncertainties of

supply and demand, as well as unpredictable events such as poor delivery reliability or poor

quality of a supplier’s products. These inventory are referred to as safety stock. Safety stock or

buffer inventory is any amount held on hand that is over and above that currently needed to meet

demand. Generally, the higher the level of buffer inventory, the better the firm’s customer

service. This occurs because the firm suffer fewer “stock outs” (when a customer’s order cannot

be immediately filled from existing inventory) and has less need to backorder the item, make the

customer wait until the next order cycle, or even worse, cause the customer to leave empty-

handed to find another supplier. Obviously, the better the customer service the greater the

likelihood of customer satisfaction.

ANTICIPATION INVENTORY

Oftentimes, firms will purchase and hold inventory that is in excess of their current need

in anticipation of a possible future event. Such events may include a price increase, a seasonal

increase in demand, or even an impending labor strike. This tactic is commonly used by retailers,

who routinely build up inventory months before the demand for their products will be unusually

high(i.e., at Halloween, Christmas, or the back-to-school season). For manufactures, anticipation

inventory allows them to build up when demand is low(also keeping workers busy during slack

times) so that when demand picks up the increased inventory will be slowly depleted and the

firm does not have to react by increasing production time(along with the subsequent increase in

hiring, training, and other associated labor costs). Therefore, the firm has avoided both excessive

overtime due to increased demand and hiring costs due to increase demand. It also has avoided

layoff costs associated with production cut-backs, or worse, the idling or shutting down of

facilities. This process is sometimes called “smoothing” because it smoothes the peaks and

valley in demand, allowing the firm to maintain a constant level of output and a stable

workforce.

DECOUPLING INVENTORY

Very rarely, if ever, will one see a production facility where every machine in the process

at exactly the same rate. In fact, one machine may process parts several times faster than the

machines in front of or behind. Yet, if one walks through the plant it may seem that all machines

are running smoothly at the same time. It also could be possible that while passing through the

plant, one notice several machines are under repair or are undergoing some form of preventive

maintenance. Even so, this does not seem to interrupt the flow of work-in-process through the

system. The reason for this is the existence of an inventory of parts between machines, a

decoupling inventory that serves as a shock absorber, cushioning the system against production

irregularities. As such it “decouples” or disengages the plant’s dependence upon the sequential

requirements of the system.

The more inventories a firm carries as a decoupling inventory between the various stages

in its manufacturing system, the less coordination is needed to keep the system running

smoothly. Naturally, logic would dictate that an infinite amount of decoupling inventory would

not keep the system in peak form. A balance can be reached that will allow the plant to run

relatively smoothly without maintaining an absurd level of inventory. The cost of efficiency must

be weighed against the cost of carrying the excess inventory so that there is an optimum balance

between inventory level and coordination within the system.

CYCLE INVENTORY

Those who are familiar with the concept of economic order quantity(EOQ) know that the

EOQ is an attempt to balance inventory holding or carrying costs with the costs incurred from

ordering or setting up machinery. When large quantities are ordered are or produced, inventory

holding costs are increased, but ordering/setup costs decrease. Conversely, when lot sizes

decrease, inventory holding/carrying costs decrease, but the cost of ordering/setup increase since

more orders/setups are required to meet demand. When the two costs are equal (holding/carrying

costs and ordering/setup costs) the total cost (the sum of the two costs) is minimized. Cycle

inventories, sometimes called lot-size inventories, result from this process. Usually, excess

material is ordered and consequently, held inventory in an effort to reach this minimization point.

Hence, cycle inventory results from ordering in batches or lot sizes rather than ordering material

strictly as needed.

MRO GOODS INVENTORY

Maintenance, repair, and operating supplier, or MRO goods, are items that are used to

support and maintain the production process and its infrastructure. These goods are usually

consumed as a result of the production process but are not directly a part of the finished product.

Examples of MRO goods include oils, lubricants, coolants, janitorial supplier, uniform, gloves,

packing material, tools, nuts, bolts, screws, shim stock, and key stock. Even office supplies such

as staples, pens and pencils, copier paper, and toner are considered part of MRO goods

inventory.

THEORETICAL INVENTORY

Theoretical inventory is a measure of this inventory (i.e., it represents the minimum

inventory needed for to flow through the system without waiting). The authors formally define it

as the minimum amount of inventory necessary to maintain a process throughput of R. expressed

as

Theoretical Inventory=Throughput*Theoretical Flow time

In this equation, theoretical flow time equals the sum of all activity times (not wait time)

required to process one unit. Therefore, WIP will equal theoretical inventory whenever actual

process flow time equal theoretical flow time.

Inventory exists in various categories as a result of its position in the production

process (raw material, work-in-process, and finished goods) and according to the function it

serves within the system (transit inventory, buffer inventory, anticipation inventory, decoupling

inventory, cycle inventory, and MRO goods inventory). As such, the purpose of each seems to be

that of maintaining a high level of customer service or part of an attempt to minimize overall

costs.

OVERVIEW ABOUT INDUSTRY

The Automotive industry in India is one of the largest in the world and one of the fastest

growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4

wheeled) and exports about 2.33 million every year. It is the world’s second largest manufacturer

of motorcycles, with annual sales exceeding 8.5 million in 2009. India passenger car and

commercial vehicle manufacturing industry is the seventh largest in the world, with an annual

production of more than 3.7million units in 2010. According to recent reports, India is set to

overtake Brazil to become the sixth largest passenger vehicle producer in the world, growing 16-

18 percent to sell around three million units in the course of 2011-12. In 2009, India emerged as

Asia’s fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand.

As of 2010, India is a home to 40 million passenger vehicles and more than 3.7 million

automotive vehicles were produced in India in 2010 (an increase of 33.9%) making the country

the second fastest growing automobile market in the world. According Manufacturers, annual car

sales are projected to increase up to 5million vehicles by 2015 and more than 9million by 2020.

By 2050, the country is expected to top the world in car volumes with approximately 611 million

vehicles on the nation’s roads.

A chunk of India’s car manufacturing industry is based in and around Chennai, also

known as the “Detroit of India” with the India operation of BMW, Ford, Hyundai and Nissan

headquartered in the city. Chennai accounts for 60 percent of the country’s automotive exports.

Gurgaon and Manesar in Haryana are hubs where all of the Maruti Suzuki cars in India are

manufactured. The chakan corridor near pune, Maharastra is another vehicular production hub

with companies like general motors, Volkswagen, Skoda, Mahindra and Tata motors, Mercedes

Benz, Fiat and Force Motors having assembly plants in the area. Ahmedabad with the Tata Nano

plant, Halol with general Motors, Aurangabad with Audi, Kolkata with Hindustan Motors, Noida

with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions

around the country.

The Indian Automotive Industry is manufacturing over 11million vehicles and exporting

about 1.5 million every year. The dominant products of the industry are two wheelers with a

market share of over 75% and passenger cars with a market share of about 16%. Commercial

vehicles and three share about 9% of the market between them. About 91% of the vehicles sold

are used by households and only about 9% for commercial purposes. The industry has attained a

turnover of more than USD 35 billion and provides direct and indirect employment to over 13

million people.

The supply chain of this industry in India is very similar to the supply chain of the

automotive industry in Europe and America. This may present its own set of opportunities and

threats. The order of the industry arise from the bottom of the supply chain i.e., from the

consumers go through the automakers and climbs up until the third tier supplier.

Interestingly, the level of trade exports in this sector in India has been medium and

imports have been low. Note that, with a high cost of developing production facilities, limited

accessibility to new technology and soaring competition, the barriers to enter the Indian

automotive sector are high and these barriers are study. On the other hand, India has a well

developed tax structure. The power to levy taxes and duties is distributed among the three tiers of

government. The cost structure of the industry is fairly traditional but the profitability of the

motor vehicle motor vehicle has been rising over the past five years. Major players, like Tata

Motors and Maruti Suzuki have material cost of above 80% but are recording profits after tax of

about 6% to 11%.

The level of technology change in the Motor vehicle Industry has been high but, the rate

of change in technology has been medium. Investment in the technology by the producers has

been high. System suppliers of integrated components d subsystem have become the order of the

day. However, further investment in new technology will help the industry be more competitive.

Over the past few years, the industry has been volatile. Currently, India’s increasing per capita

disposal income which is expected to rise by 106% by 2015 and growth in exports is playing a

major role in the rise and competitiveness of the industry.

Tata Motors is leading the commercial vehicle segment with a market share of about 64%

Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%. Hyundai

motor India and Mahindra are focusing expanding their footprint in the overseas market. Hero

Honda Motors is occupying over 41% and sharing 26% of the two wheeler market in India with

Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheeler market.

Consumers are very important of the survival of the Motor Vehicle manufacturing

industry. In 2008-2009, customers sentiment dropped, which burned on the augmentation in

demand of cars. Steel is the major input used by manufactures and the rise in price of steel is

putting a cost pressure on manufacturers and cost is getting transferred to the end consumer.

The key to success in the industry to improve labor productivity, labor flexibility, and

capital efficiency. Having quality manpower, infrastructure improvements, and raw material

availability also play a major role. Access to latest and most efficient technology and techniques

will bring competitive advantage to the major players. Utilizing manufacturing plants to

optimum level and understanding implications from the government policies are essential in the

Automotive aHaving Industry of India.

1.2 COMPANY PROFILE

INTRODUCTION

Lucas- TVS was set up in 1961 as a joint venture of Lucas Industries plc.

Uk and TV sundaram Iyengar & Sons (TVS), India, to manufacture Automotive Electrical

Systems. One of the top ten automotive component suppliers in the world, Lucas Varity was

formed by the merger of the Lucas Industries of the UK and the Varity Corporation of the US in

September 1996. The company designs manufacturers and supplies advanced technology

systems, products and service to the worlds automotive, after market, diesel engine and

aerospace industries.

The combination of these two well-known groups has resulted in the establishment of a

vibrant company, which has dad a successful track record of sustained growth over the last three

decades. TVS is one of India’s twenty large industrial houses with twenty-five manufacturing

companies and a turnover in excess of US $2.3 billion. The turnover of Lucas-TVS and its

divisions is US $233 million during 2003-2004.

Incorporating the strengths of Lucas UK and the TVS group, Lucas TVS has emerged as

one of the foremost leaders in the automotive industry today. Lucas TVS reaches out to all

segments of the automotive industry such as passenger cars, commercial vehicles, tractors, jeeps,

two-wheelers and off-highway vehicles as well as for stationery and marine applications. With

the automobile industry in India currently undergoing phenomenal changes, LUCAS-TVS, with

its excellent facilities, is fully equipped to meet the challenges of tomorrow.

LUCAS-TVS Limited, along with its subsidiaries, design, develop, manufactures and

supplies automotive electrical systems. The company offer starter, wiper, blower, and fan motors

and alternators, headlamps, dynamo regulators, dynamos, ignition systems, and automotive

lighting products. Its products are used in passenger cars and commercial vehicles, tractors, jeep,

two-wheelers, and off-highway vehicles; earth moving equipment and genets; and stationary and

marine applications. Lucas-TVS Limited offers its products through a network of branches and

outlets serving customers in the United states/European markets….

HISTORY

The first car ran on India’s roads in 1897. Until the 1930s, cars were imported directly,

but in very small numbers.

Embryonic automotive industry emerged in India in the 1940s. Mahindra and Mahindra

was established by two brothers as a trading company in 1945, and began assembly of Jeep cj-

3A utility vehicles under license from Willis. The company soon branched out into the

manufacture of light commercial vehicles (LCVS) and agricultural tractors.

Following the independence, in 1947, the Government of India and the private

sector launched efforts to create an automotive component manufacturing industry to supply to

the automobile industry. However, the growth was relatively slow in the 1950s and 1960s due to

nationalization and the license raj which hampered the Indian private sector. After 1970, the

automotive industry started to grow, but the growth was mainly driven by tractors, commercial

vehicles and scooters. Cars were still a major luxury. Japanese manufacturing entered the Indian

market ultimately leading to the establishment of maruti Udyog. A number of foreign firms

initiated joint ventures with Indian companies.

In the 1980s, a number of Japanese manufacturers launched joint-ventures for building

motorcycles and light commercial-vehicles. It was at this time that the Indian government chose

Suzuki for its joint-venture to manufacture small cars. Following the economic liberations in

1991 and the gradual weakening of the license, a number of Indian and multi-national car

companies launched operations. Since then, automotive component and automobile

manufacturing growth has accelerated to meet domestic and export demands.

Following economic liberations in India in 1991, the Indian automotive industry has

demonstrated sustained growth as a result of increase competitiveness and related restrictions.

Several Indian automotive manufacturing such as Tata Motors, Maruti Suzuki and Mahindra,

expanded their domestic and international operations. India’s robust economic growth led to the

further expansion of its domestic automobile market which has attracted significant India-

specific expansion of its domestic automobile market which has attracted significant India-

specific investment by multinational automobile manufactures. In February 2009, monthly sales

of passenger cars in India exceed 1,00,000 units and have since grown rapidly to a record

monthly high of 182992 units in October 2009. From 2003 to 2010, car sales in India have

progressed at a CAGR of 13.7% and with only 10% of Indian households owning a car in 2009

(whereas this figure reaches 80% in Switzerland for example) this progression is unlikely to stop

in the coming decade. Congestion of Indian roads, more than market demand, will likely be the

limiting factor.

TVS GROUP

The TVS Group traces its origin to a rural transport services, founded in 1911 in

TamilNadu, India. Today, this renowned business conglomerate remains faithful to its core

ideals of trust, values, service and ethics. The TVS Group is India’s leading supplier of

automotive components and one of the country’s most respected business groups. With a

combined turnover of more than USD 5 billion, the TVS Group employs a total workforce of

around 25,000 charting a steady growth in terms of expansion and diversification; it currently

comprises around 43 companies. These companies operate in diverse fields ranging from two-

wheeler and automotive component manufacturing to automotive dealership, finance and

electronics. Uniting these multiple business is a common ethos of quality, customer service and

social responsibility.

MISSION

To be a respected supplier in the global auto Industry, by developing innovative products

and solutions of value to customers through creative skills and involvement of employees,

supplier and dealers and use of contemporary technology.

VISION

• To be the supplier of choice of all leading vehicle manufacturers in India.

• To be a recognized OE supplier in Asia Pacific and Middle East markets.

• To achieve global recognition for its innovative approach to products and solutions.

• By 2010, sell INR 1400 crores [USD 300 Million] of products and solutions with a third

to customers outside India.

PRODUCTS

STARTER MOTORS

• Starters for passenger cars.

• Starters for light trucks.

ALTERNATOR

• Alternator for diesel cars.

• Range of alternator.

WIPER MOTOR

• Type of wiping system.

➢ Integral type.

➢ Built in mounting frame.

➢ Linkage for opposed wipe pattern.

➢ Discrete type-3 Arm and Blades.

BLOWER MOTORS

SMALL MOTORS

IGNITION PRODUCTS

COUNTRIES TO WHOM THEY EXPORT

U.S.A, Ireland, Italy, Bangladesh, oman, Ukraine, Singapore, UK, Belgium, Turkey,

Egypt, Malaysia, Australia, Denmark, Spain, Srilanka, Thailand.

CUSTOMERS

They TVS Group, with a turnover of over one billion dollars, is the largest manufacturer

of automotive components in India. The group produces auto electrical, diesel fuel injection

systems, braking systems, automotive wheels and axle fasteners.

CAR UTILITY VEHICLES

• General Motors India

• Fiat India

• Hyundai Motor India

• Ford India

• Hyundai Motors

• Maruti Udyog

• Mahindra Renault

• Tata Motors

TRACTORS

• HMT

• SAME

• Escorts

• TAFE

• Mahindra & Mahindra

• John Deree

• Standard combines

• Indofarm

ENGINES/EARTH MOVERS

• Kiroloskar oil Engines

• Birla Yamaha

• Lombardini India

• Greaves Cotton

• Tata Cummins

• Simpsons & co

• Caterpillar India

• Bharath Earth Movers

• L&T Komatsu.

2WHEELERS/ 3 WHEELERS

• Kinetic Engineering.

• Yamaha Motor India.

• Hero Motors.

• Honda Motor Cycles & Scooter India Pvt.ltd.

• TVS Motor Co.

• Bajaj Auto.

• Mahindra & Mahindra.

• Royal Enfield.

AWARDS

S.NO. DETAILS OF THE AWARD YEAR IN WHICH LUCAS

RECEIVED THE AWARD

1 Technology Award 1998-1999

2 Energy conservation Award 2000-2001

3 Productivity Award 2001-02

4 AU-TVS 5 star Award on 5S 2002

5 Hyundai Motor (100 PPM Award) 2003

6 Outstanding Overall Performance 2004

7 Superior Kaizen Award 2004

8 3 Times Deming Application Prize 2004

9 Gold Trophy for Manufacturing Excellence 2004-2005

10 Platinum Award Manufacturing Excellence 2005

11 Managerial Excellence in Manufacturing 2004-2005

12 BIS(Rajiv Gandhi National Award) 2006

13 Best Vendor Award 2000 & 2006

14 Mahindra Tractor Division (Best Quality Award) 2007

15 Honda (Best supplier Award) 2007

1.3 IDENTIFIED PROBLEM

The first step while conducting research is careful definition of Research Problem.

”TO ERR IS THE HUMAN” is a proverb which indicates that no one is perfect IN THIS

WORLD. Every researcher has to face many problems which conducting any research that’s why

problem statement is defined to know which type of problem a researcher has to face while

conducting any study. It is said that,

“Problem well defined is problem half solved”

Basically, a problem statement refers to some difficulty, which researcher experiences in

the context of either a theoretical or practical situation and wants to obtain the solution for the

same.

“TO MAKE INVENTORY MANAGEMENT ANALYSIS OF LUCAS-TVS PRIVATE

LIMITED”

1.4 NEED FOR THE STUDY

Every organization needs inventory for smooth running of its activities. It serves as a

link between production and distribution process. 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. So, in order to understand the nature of inventory

management of the organization, I took this inventory management as a topic for my project, to

give findings and suggestions by adopting and analyzing different inventory control techniques.

1.5 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

• To analyze the efficiency of inventory management in Lucas TVS Ltd.

SECONDARY OBJECTIVE

• To identify optimum levels of inventory which minimizes the cost.

• To study how ABC analysis is implemented in inventory management.

• To find inventory requirement for the next 5 years.

1.6 SCOPE FOR THE STUDY

• To give the plan to the company what to order, when to order and how to order.

• It is useful for deciding operating profit and volume of inventory.

• It helps to develop the policies for the executives in inventory.

• It helps the company what items are goods are categorized.

• It helps to deal with forecasting in inventory.

1.7 DELIVERABLES

• This study helps the company for ABC inventory system, in order to control the average

inventory.

• Ratios have been calculated to assess the turnover of the inventory and the period within

which the turnover is recovered.

• ABC analysis is used to compute each item’s percentage of the total inventory in terms of

annual usage.

• Economic order quantity is assume that cost of managing inventory is made up solely of

two parts i.e., ordering cost and carrying cost.

CHAPTER-2

LITERATURE SURVEY

2.1 REVIEW OF LITERATURE

A REPORT ON INVENTORY MANAGEMENT BY VIJAYARAMAN

In this review Mr. VIJAYARAMAN.R, who as done the project about a report Inventory

at WOIL, an inventory Management System is an essential element in an organization. It is

comprised of a series of processes which provide an assessment of the organisation’s inventory.

The inventory Management System also aids the organization in achieving its goals and

objectives with the primary focus on adding value for the customers. The management of

inventory of inventory adds value for customers (quality, speed, flexibility, and cost), and this is

the primary consideration of the Operation Management System. Inventory management is

possibly one of the richest areas of operations management, with many tools and techniques

available to help managers run their processes as effective as possible.

In this project he made an analysis for Export Oriented Units (EOU) and fixing norms for

Coffee Maker, Coffee Grinder, Grind Mill & Micro Oven. After finishing analysis he compares

between the Suggested norms and Existing norms. He also made as analysis of Washing

Machine and their norms for different classifications of washers at WOIL. Finally he used

correlation with statistical Tools. He also classified EOU’s & Washers products with ABC

Classification.

A STUDY ON INVENTORY MANAGEMENT BY CHARLES ATKINSON

In this review Mr. CHARLES ATKINSON explains inventory as inventory management

topics, he explains average inventory levels, in this topic he explained about two parts. This first

half part of this article covers how to find what inventory levels should be, and the second half

covers how to evaluate it..

Average Inventory Levels

Part 1: How to Optimize Average Inventory Levels?

In this part, it provides a brief description for how optimal inventory levels for materials

are kept. Essential, this section can serves as a starting point for inventory managers. The first

thing he determines the ideal inventory levels is a material’s Economic Order Quantity(EOQ).

This is the amount one should be ordering when you place orders.

Next he determine Safety Stock(SS). This is the amount that you should have remaining

when the EOQ arrives. This should be intuitive because safety is what you have when your

shipment arrives and when the order arrives (EOQ) it gets added to the safety stock.

It is clear that average minimum and maximum levels because you might not receive the

EOQ exactly when you planned to and therefore may have more or less. On average you should

have the SS amount when you receive shipments. Between these two average minimum and

maximum values lies long-term average inventory.

Part 2: How to assess (evaluate) Inventory levels?

Average inventory can be calculated by Simplistic Method.

Most methods of accounting take the beginning inventory of a period, add it to the ending

inventory of a period, and divide by 2. This essentially provides the mathematical average for a

given month.

Avg. Inventory =(Beginning Inventory + (Beginning Inventory + Units Produced – units

Sold) / 2

Or more simply:

Avg. Inventory =(Beginning Inventory + Ending inventory) / 2

MEANING OF INVENTORY

Inventory means physical stock of goods which is kept in hands for smooth and efficient

running of future affairs of an organization at the minimum cost of funds blocked in

inventories. The fundamental reasons for carrying inventory is that it is physically impossible

and economically impractical for each stock item to arrive exactly where it is needed exactly

when it is needed. There are three basic reasons for keeping an inventory.

1. Time- The time lags present in the supply chain, from supplier to user at every stage, requires

that you maintain certain amounts of inventory to use in the “lead time”.

2. Uncertainty- Inventories are maintained as buffers to meet uncertainties in demand, supply

and movements of goods.

3. Economics of scale- Ideal condition of “one unit at a time at a place where a user needs it,

when he needs it” principle tends to incur lots of costs in terms of logistics. So bulk buying,

movement and storing brings in economics of scale, thus inventory.

REASONS FOR HOLDING INVENTORY

• To stabilize production.

• To take advantage of price discounts.

• To meet the demand during the replenishment period.

• To prevent loss of orders.

• To keep pace with changing market conditions.

MOTIVES OF HOLDING INVENTORIES

• The Transaction Motive which facilities continuous production and timely execution

of sales orders.

• The Precautionary Motive which necessities the holding of inventories for meeting

the unpredictable changes in demand and supplier of materials.

• The Speculative Motive which induces to keep inventories for taking advantage of

price fluctuations, saving in re-ordering costs and quantity discounts etc…

COSTS ASSOCIATED WITH INVENTORY

• Production cost.

• Capital cost.

• Ordering cost.

• Carrying cost.

• Shortage cost.

INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency in production

& sales with minimum investment in inventory.

Inventory control is a planned approach of determining what to order, when to order and

how much to order and how much to stock, so that costs associated with buying and storing are

optimal without interrupting production and sales.

BENEFITS OF INVENTORY CONTROL

The benefits of inventory control are

• Improvements in customers relationship because of the timely delivery of goods and

service.

• Smooth and uninterrupted production and hence, no stock out.

• Efficient utilization of working capital.

• Economy in purchasing.

• Eliminating the possibility of duplicate ordering.

PRINCIPLES OF INVENTORY CONTROL

• Inventory is only created by spending money for material and the labor and overhead

to process the materials.

• Inventory is reduced through sales and scrapping.

• Accurate sales & production schedule forecasts are essential for efficient purchasing,

handling & investment in inventory.

• Management policies which are designed to effectively balance size and variety of

inventory with cost of carrying that inventory are the greatest factor in determining

inventory investment.

• Forecasts help determine when to order materials. Controlling inventory is

accomplished through scheduling production.

• Control is comparative & relative, not absolute. It is exercised through people with

varying experiences and judgment rules & procedures establish a base from which the

individual can make evaluation and decision.

• With the consistent practices being followed, inventory control can became

predictable and properly related to production and sales activity.

• Records do not produce control.

INENTORY CONTROL-TERMINOLOGY

Demand

It is the number of items required per unit of time. The demand may be either

deterministic or probabilistic in nature.

Order cycle

The time between two successive orders is called order cycle.

Lead time

The length of time between placing an order and receipts of items is called lead

time.

Safety stock

It is also called buffer stock or minimum stock. It is the stock or inventory needed

to account for delays in materials supply and to account for sudden increase in demand

due to rush order.

Inventory turnover

If the company maintains inventories equal to 3 months consumption. It means

that inventory turnover is 4 times a year i.e., the entire inventory is used up and

replaced 4 times a year.

Inventory Control Techniques

Inventory control techniques are employed by the inventory control organizations within

the framework of one of the basic inventory models, viz, fixed order quantity system or fixed

order period system. Inventory control techniques represent the operational aspect of inventory

management and control.

Several techniques of inventory control are in use and it depends on the convenience of

the firm to adopt any of the techniques. What should be stressed, however, is the need to cover

all items of inventory and all stages, i.e., from the stage of Receipt from suppliers to the stage of

their use. Here some of the techniques used are the following:

• Economic order quantity

• ABC analysis

• Inventory Turnover ratio.

ECONOMIC ORDER QUANTITY

MEANING

A decision about how much to order has great significance in inventory management. The

quantity to be purchased should neither be small nor big because coasts of buying and carrying

materials are very high. Economic order quantity is the size of the lot to be purchased which is

economically viable. This is the quantity of materials which can be purchased at minimum costs.

Generally economic order quantity is the point at which inventory carrying costs are equal to

order costs. In determining economic order quantity it is assumed that cost of managing

inventory is made up solely of two parts i.e., ordering cost and carrying cost. The cost

relationships are sown in below figure.

FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY(EOQ)

ABC ANALYSIS

MEANING

The inventory of an organization generally consists of thousands of items with varying

prices, usage rate and lead time. It is neither desirable nor possible to pay equal attention of all

items. ABC analysis is a basic analytical tool which enables management to concentrate its

efforts where results will be greater. The concept applied to inventory is called as ABC analysis.

Statistics reveal that just a few items account for bulk of the annual consumption of the

materials. These few items are called a class items which hold the key to business. The other

items known as B & C which are numerous in number but their contribution is less significant.

ABC analysis thus tends to segregate the items into three categories A, B & C on the basis of

their values. The categorization is made to pay right attention and control demanded by items.

The following procedure is suggested for developing an ABC analysis:

• List each item carried in inventory by numbers or some other designation.

• Determine the annual volume of usage and rupee value of each item.

• Multiply each item’s annual volume of usage by its rupee value.

• Compute each item’s percentage of the total inventory in terms of annual usage in rupees.

• Select the top 15 percent of all items which have the highest rupee percentage and

classify them as ‘A’ items.

• Select the next 20 percent of all items with the next highest rupee percentages and

designate those ‘B’ items.

• The next 65 percent of all items with the lowest rupee percentage are ‘C’ items.

Advantages

• By exercising strict control on A class items, the materials is able to show the results

within a short period of time.

• It results in reducer clerical costs, saves time and effort and results in better planning and

control and increased inventory turnover.

• ABC analysis, thus, tries to focus and direct the effort based on the merit of the items

and, thus, becomes an effective management control tool.

INVENTORY TURNOVER RATIO

Kohler defines inventory turnover as “a ratio which measures the number of times a

firm’s average is sold during a year”.

A higher turnover rate indicates that the material in question is a fast moving one. A low

turnover rate, on the other hand, indicates over-investment and locking up of working capital on

undesirable items.

Inventory turnover ratio may be calculated in different ways by changing the numerator,

but keeping the same denominator.

Stock turnover is measured in terms of the ratio of the value of materials consumed to the

average inventory during the period. The ratio indicates the number of times the average

inventory is consumed and replenished. By diving no. of days in a year by turnover ratio, the

number of days for which the average inventory is held, can be ascertained.

2.2 RESEARCH GAP

The past studies have laid emphasis on the maintenance efficient inventory management

for the company. The previous studies have adopted in regard to the maintenance of inventory

management. The inventory turnover was measured by various tools of analysis and ratios with

the help of past records..

The present study focus on the overall inventory turnover of the company. Unlike other studies,

this inventory management study has offered suggestions to standardize and improve the

effective maintenance of inventory department for having smooth flow of production of

products. This includes various analysis and ratios regarding the inventory requirement position

for the next five years.

CHAPTER-3

RESEARCH METHODOLOGY

INTRODUCTION

Research is a process in which the researchers wish to find out the end result for a given

problem and thus the solution helps in future course of action. The research has been defined as

“A careful investigation or enquiry especially through search for new facts in branch of

knowledge”.

“Research is a systematized effort to gain new knowledge”.

-Redman and Mory.

3.1 TYPE OF RESEARCH

The type of project used is Analytical in nature the procedure using, which researcher has

to use facts or information already available, analyze these to make a critical evaluation of the

performance.

3.2 OBJECTIVES OF THE STUDY

PRIMARY DATA

• To analyze the efficiency of inventory management of Lucas TVS Ltd.

• Data are collected through personal interviews and discussion with Finance-Executives.

• Data are collected through personal interviews and discussion with Material Planning

Deputy manager

SECONDARY DATA

• The data are collected from the annual reports maintained by the company for the report

maintained by the company for the past five years 2006-2010.

• Data’s are collected from the company’s website.

• Books and journals are pertaining to the topic

• To identify optimum levels of inventory which minimizes the cost

• To study how ABC analysis is implemented in inventory management

• To identify inventory requirement for the next 5 years

3.3 CONSTRAINTS AND LIMITATIONS

• The entire analysis applies only to LUCAS-TVS, Chennai.

• The study takes into account only the quantitative data and the qualitative aspects were

not taken into account.

• ABC analysis is not one time exercise and items are to be reviewed and re-categorised

periodically.

• The authenticity of the financial statements has been checked with the book of accounts

of the company.

RESEARCH DESIGN

The research design constitutes the blue print for the collection, measurement and

analyses of data. The research design may be exploratory, descriptive and experimental for the

present study. The descriptive research design is adopted for this project.

3.5 DATA COLLECTION METHODS

There are numerous possible sources of data. The selection of the sources of data for a

particular study is important. It depends on the research objectives. The collected data have been

tabulated and analyzed in a systematic manner. Generally the sources of data is classified into

two categories

• Primary data

• Secondary data

My research is based on Secondary data.

Secondary data

Secondary data is data collected by someone other than the user. Common source of

secondary data for social science includes

1. From the annual reports maintained by the company.

2. Data are collected from the company’s website.

3. Books and journals pertaining to the topic.

4. Data also collected from company’s Records, Brochures, Magazines etc.

3.6 TOOLS USED FOR ANALYSIS OF DATA

• Economic order quantity.

• ABC analysis.

• Inventory Turnover ratio.

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

4.1 ECONOMIC ORDER QUANTITY

YEARS 2005-06 2006-07 2007-08 2008-09 2009-10

EOQ 4024.62 4550.09 4068.74 3100.48 2532.76

INTERPRETATION

The above table reveals that economic order quantity for the year 2006-2010. In the year

2006-2007 economic order quality was increased to 4024.62, 4550.09 and then 2008 the

economic order quantity was increased to 4068.74. Again in the year 2009 and 2010 the

economic order quantity was decreased to 3100.48 and 2532.76.

4.2 ABC ANALYSIS

ITEMS UNITS UNIT COST USAGE

PRECENTAGE

RANK

1 4024.62 0.296 1192.21 4

2 4550.09 0.29 1322.13 1

3 4068.74 0.32 1311.64 2

4 3100.47 0.40 1251.67 3

5 2535.75 0.35 893.13 5

TOTAL 1.66 5970.79

ITEMS % VALUE CUMULATIVE

VALUE

% ITEMS CUMULATIVE

% OF ITEMS

CLASS

2 1322.14 1322.14 20 20 A

3 1311.64 2633.78 20 40 A

4 1251.67 3885.45 20 60 B

1 1192.21 5077.67 20 80 C

5 893.13 5970.79 20 100 C

INTERPRETATION

The above table shows the classification of the A, B, C classes by using the ABC analysis

based on unit value. For A class unit value is more than Rs.100 and constitutes 65% of total

components, for class B the unit value is between Rs.25-100 constitutes 20% of the total

consumption and class C value is less than Rs.25 constitutes 15% of total components.

4.3 INVENTORY TURNOVER RATIO

Net Sales

Inventory turnover ratio= ------------------------------

Average inventory

YEAR NET SALES AVG.INVENTORY RATIO

2005-2006 95,380.12 9598.93 9.94:1

2006-2007 114,171.59 11544.02 9.89:1

2007-2008 127,378.60 16,153.77 7.89:1

2008-2009 124,441.74 13,981.01 8.9:1

2009-2010 133,320.18 17,141.73 7.78:1

INTERPRETATION

The above table shows that inventory turnover ratio for the past 5 years. In the year 2006

inventory turnover ratio was increased to 9.94. In the year 2008 the ratio was decreased to 7.89.

Again in the year 2009 the inventory ratio was increased to 8.9 and in the year 2010 the ratio is

decreased to 7.78.

CHAPTER-5

5.1 SUMMARY AND FINDINGS

• From the calculation of economic order quantity there is a variation in materials

purchased and placing an order. So in the year 2010 the EOQ value was decreased.

• In ABC analysis the A class unit value is more than 100 constitutes 65% of total items. B

class unit value is Rs.25-100 constitutes 20% of total items. C classes unit value is Rs.10,

constitutes 15% of total items. This leads to the company maintains the inventories based

on its unit value using this technique.

• From the past year data shows that the inventory was increased. So the organization is

expecting more inventories in future period i.e.2011.

• The inventory turnover ratio shows that increasing trend from 2006-2009 and except in

the year 2010 which shows that ratio was decreased.

5.2 SUGGESTIONS AND RECOMMENDATIONS

• If they follow the EOQ, it will reduce the cost and to enhance the profit.

• Since A classes constitutes more percentage than B & C. There should be tight control in

inventories done through continuous check, order frequently to avoid over investment of

working capital.

• The company is requires to maintain stock levels in order to avoid stock out conditions

and help in continuous production flow.

• The company is expecting more inventories for future i.e. 2011. The management is

requires to maintain the same inventory level in the forth coming year also.

• The inventory turnover ratio indicates whether investment in inventory is within proper

limit or not. Inventory Turnover ratio requires to maintain high turnover ratio than the

lower ratio. A high ratio implies good and efficient business activities

. 5.3 CONCLUSION

A better inventory management will surely be helpful to the company to overcome their

problems and will pave way for reducing the huge investment or blocking of money in inventory.

From analysis we can conclude that the company can follow the Economic Order Quantity

(EOQ) for optimum purchase and it can maintain safety stock for its components in order to

avoid stock-out conditions & help in continuous production flow. This would reduce the cost and

enhance the profit.

Through ABC analysis we can maintain high percentage of items in inventories. Since

the inventory turnover ratio shows the increasing trend, there will be more demand for the

products in the future periods.

The explanatory study suggests LUCAS TVS LTD make relative high use of inventory

techniques similar to the concept of inventory management.

However this study provides little insight into the actual organizational processes and

action that proceed are initiated by these inventory management.

If they could properly implement and follow the norms and techniques of inventory

management, they can enhance the profit with minimum cost.

BIBLIOGRAPHY

REFRENCES BOOKS

M Y Khan P K Jain “Financial Management” 4th edition Tata McGraw Hill.

Martand Telsang “Industrial Engineering & Production Management” S Chand & Co.

R.Paneerselvam “Operations Research” Prentice hall Of India Private Ltd.

S.P. Iyengar “Cost & Management Accounting” Sultan Chand & Sons.

➢ WEB SITES

www.lucastvs.com

www.inventorymanagementreview.org/inventory_basics/index

www.inventorymanagementreview.org/inventory_control/index