In Financial Parlance--- MOUMAN BISWAS

DESIGN OF EFFECTIVE SUPPLY

CHAIN

FOR

WORKING CAPITAL MANAGEMENT

Submitted by :

MOUMAN BISWAS

Enrollment number: 06Bs1858

ICFAI BUSINESS SCHOOL

HYDERABAD

BATCH OF 2006-2008

NAME OF THE ORGANIZATION:

KITCHEN APPLIANCES INDIA LIMITED

(VIDEOCON GROUP OF COMPANIES)

ICFAI Business School-Hyderabad

A REPORT ON

DESIGN OF EFFECTIVE SUPPLY CHAIN

FOR

WORKING CAPITAL MANAGEMENTSubmitted by :

MOUMAN BISWAS

Enrollment number: 06Bs1858

ICFAI BUSINESS SCHOOL

HYDERABAD

BATCH OF 2006-2008

A report submitted in the partial fulfillment of the requirements of MBA Program of

ICFAI Business School

Company Guide FACULTY GUIDE:

Mr. Siddhartha Sengupta Prof.S.N Mookherjee

MATERIALS MANAGER ICFAI BUSINESS SCHOOL

KAIL Kolkata

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ACKNOWLEDGEMENT:

I feel privileged to be associated with Videocon Group of companies, which

is one of the leading companies in manufacturing of consumer durables in

India. I deeply express my gratitude to Kitchen Appliances India Limited

for giving me an opportunity to work as a trainee in their manufacturing

unit at Salt Lake. I would like to give my sincere regards to Mr. Goutam

Sengupta, Vice President of Kitchen Appliances India Limited. Last 3

months has been a great learning experience for me, which will help me to

work in the corporate world.

I would like to thank Mr. Siddhartha Sengupta, Materials Manager of

Kitchen Appliances India Limited, for giving me his valuable time and

inputs needed for preparing this final report.

I am really grateful to my faculty guide Prof.S.N.Mookherjee whose

practical knowledge and experiences has helped me in understanding and

analyzing various aspects of this project.

I would convey my regards to Prof.Santanu Roy, Director of ICFAI

Business School, and Kolkata for giving me this opportunity.

Finally, I would also like to thank all the employees of KAIL for their kind

cooperation.

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TABLE OF CONTENTS:

Acknowledgement………………………………………………………………………..Pg.3Abstract………………………………………………………………………………………..Pg.5

1.) INTRODUCTION

About Videocon……………………………………………………………………………Pg.6

About Kitchen Appliances India Limited………………..................Pg.8

Brief idea about working capital…………………………………………..…Pg.10

Brief idea about supply chain………………………………………………..…Pg.12

Purpose of the project……………………………………………………………...Pg.16

Scope of study……………………………………………………………………….……Pg.18

Outline of the work……………………………………………………..…………….Pg.19

Limitation of the study……………………………………………………………..Pg.21

Source of data…………………………………………………………………………….Pg.23

Time schedule………………………………………………………………..……………Pg.24

2.) MAIN TEXT Pg.26

KAIL’s norms for inventory………………………………………..………….Pg.27

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Plan procedure…………………………………………………………………………..Pg.28

Importance of inventory in KAIL…………………… …………………..Pg.29

ABC analysis………………………….…………………………………………………..Pg.30

Existing inventory policy in KAIL for “A” items………………..Pg.34

Proposed inventory system ……………………………………………………Pg.37

Extra material holding..…………………………………………………………..Pg.52

Inventory policy for “B” & “C” items in KAIL…………………….Pg.60

Slow moving and non-moving materials…………………………………Pg.62

3) RECOMMENDATION……………………………………………………………………..…….Pg.63 4)

APPENDICES………………………………………………………………………

…………………..Pg.67

5)

REFERENCES………………………………………………………………………

…………………..Pg.74

ABSTRACT:

In today’s world manufacturers are faced with increased global

competition, more informed customers, increasingly complex supply

chains and the pressure of being first-to-market with the most

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innovative products. To maintain a globally competitive posture and to

cope with mounting pressure to improve productivity, while at the

same time reduce costs, manufacturing industry is to concentrate

much on the investment of working capital. And inventory is the most

integral portion of the working capital. Manufacturers need to be sure

that the relationship between suppliers, partners and distributors is

unimpeded by traditional stumbling blocks of time and location.

Kitchen Appliances India Limited is a wholly owned subsidiary of

Videocon manufactures wide range of products starting from

Televisions, refrigerators, washing machines, DVD players to micro

wave oven, air conditioners and etc. Its approximate investment in

inventories amounts to 10crores.So,it is crucial that KAIL should

develop and use various tools and technique so that it can achieve

optimum utilization of its resources.

In this Project report last 12months data i.e. April, 2006 to March,

2007 has been analyzed based on various inventory models and tools.

This project aims at understanding effective use of working capital

which will contribute to the operational efficiency of the organization;

optimum use will help to generate maximum returns.

Today, Videocon is household

name across the nation- India's No.

1 brand of Consumer Electronics & Home Appliances, trusted by over

50 million people to improve their quality of life.

Shri Nandlal Madhavlal Dhoot, the founder of the Videocon group in

early 80’s,through a technical tie up with Toshiba Corporation of

Japan, Videocon International Limited launched India’s first color

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Television. Today Videocon is the largest seller of big screen color

televisions in India and exports more than 1million color televisions.

Now the group operates through 4 key sectors :1.consumer durables

2.Thomson CPT 3.CRT glass 4.Oil and gas.

With a turnover exceeding Rs50 billion,18 manufacturing units and

more than 10000 employees ,the Videocon group has become a

market leader in manufacturing of consumer electronics and home

appliances.

Company’s product range is highly diversified-it makes Television, air

conditioner, VCRs, washing machine, refrigerator, microwave oven,

water purifier, audio system and many more.

LOGO LOGIC:

This is the new Videocon symbol. It reiterates the ethos of a company

dedicated to maintaining the highest international standards of

excellence through quality, technology and innovation. For over a

decade now, Videocon has been bringing the latest and very best in

Consumer Electronics and Home Appliances. Successfully adapting the

best of international technology to suit Indian needs, and crafting it to

improve the quality of life – as million of satisfied customers will agree.

The new symbol of Videocon asserts its passion for global impact, and

the two ‘E’s on either side represent the Group’s wide spectrum of

interests ranging from ‘Electronics to Energy’. Along with the steely

glint, this communicates the group's global ambition, its strength,

sterling credentials and innovative drive.

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VISION:

To bring happiness in every home with global presence offering high

quality products to ease & enrich human life.

MISSION:

To delight and deliver innovative products through ingenious

strategy, intrepid entrepreneurship, improved technology, insightful

marketing and inspired thinking about the future.

ORGANISATIONAL DETAILS:

NAME OF THE ORGANIZATION:

KITCHEN APPLIANCE INDIA LTD. (VIDEOCON GROUP OF COMPANIES)

Kitchen Appliances India Limited (KAIL) is a manufacturing unit in

Eastern India of Videocon Industries Ltd. It was set up in 1999 to

produce Consumer Electronics & Home Appliances products for

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Videocon, Akai, Hyundai, Sansui, Kenstar, Toshiba, Electrolux brands.

It’s product range starts from Televisions, refrigerators, washing

machines, DVD players to micro wave oven, air conditioners and etc. It

is the main plant in Eastern India which handles 20% of the total

demand.

It has its registered office at:-

171,Mittal Court

C-Wing,

Nariman point

Mumbai-400021.

KAIL has 26 branches in India. In West Bengal it has 3 such

manufacturing units.

At Salt Lake

At Taratala

At Siliguri

Its product range starts from television, air conditioner to micro wave

oven, refrigerator and many more. These varieties of products which

are manufactured in KAIL along with their brand name are listed as

follows:

SL No. Product type Brand Name

1. Color

Television

Videocon, Akai, Hyundai, Sansui,

Kenstar, Toshiba, Electrolux

2. Washing

Machine

Videocon, Kenstar. Electrolux

3. Refrigerator Videocon, Akai, Electrolux

4. Air conditioner Videocon, Akai ,Electrolux

5. Microwave

Oven

Kenstar

6. Audio, DVD Videocon, Akai, Sansui,Hyundai,Nest

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This project is carried on in the Salt Lake factory.

ADDRESS OF THE ORGANIZATION:

BLOCK-BP. SECTOR – V.

SALT LAKE CITY,

KOLKATA- 700091

In Salt Lake Factory mainly CTV i.e. color Television, Refrigerator, DVD

are manufactured.

A BRIEF IDEA ABOUT WORKING CAPITAL:

In a simple term, working capital may be defined as that part of capital

of an organization which is used to maintain its main operating

activities by means of a continuous rotation of capital employed for

this purpose. There are basically two concepts of working capital.

i) Gross working capital: This concept is the wider concept which

means that the summation of all its current assets is its working

capital.

ii) Net working capital: According to this net concept the difference

between the value total current assets and current liabilities is the

working capital.

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So in simple, Working capital is the firm’s investment in current

assets. Current assets are comprised of all the assets that the firm

expects to convert into cash within the year, including cash, accounts

receivable, inventories etc. Working capital management is the

process of planning and controlling the level and mix of the current

assets of the firm as well as financing these assets. The objective of

working capital management is to maintain the optimum balance of

each of the working capital components. Good management of working

capital is part of good financial management. Effective use of working

capital will contribute to the operational efficiency of an organization;

optimum use will help to generate maximum returns on their

investment.

Before going deep in to the project one must know how this working

capital circulates in different forms to generate revenue and profit.

The fact that working capital only amounts to a few months’ supply

means that the working capital cycle, a cycle running from cash to

inventories, inventories to work-in-progress, work-in-progress to

finished good finished goods to receivables and lastly receivables to

cash .

Working Capital Cycle

There are two elements in the business cycle that absorb cash -

Inventory (stocks and work-in-progress) and Receivables (debtors

owing you money). The main sources of cash are Payables (creditors)

and Equity and Loans.

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Each component of working capital (namely inventory, receivables and

payables) has two dimensions TIME and MONEY. When it comes to

managing working capital - TIME IS MONEY. If company can get money

to move faster around the cycle (e.g. collect monies due from debtors

more quickly) or reduce the amount of money tied up (e.g. reduce

inventory levels relative to sales), the business will generate more

cash or it will need to borrow less money to fund working capital. As a

consequence, company could reduce the cost of bank interest or will

have additional free money available to support additional sales

growth or investment.

A BRIEF IDEA ABOUT SUPPLY CHAIN:

A supply chain is a network of facilities and distribution options that

performs the functions of procurement of materials, transformation of

these materials into intermediate and finished products, and the

distribution of these finished products to customers. Supply chains

exist in both service and manufacturing organizations, although the

complexity of the chain may vary greatly from industry to industry and

firm to firm.

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An example of a very simple supply chain for a single product, where

raw material is procured from vendors, transformed into finished

goods in a single step, and then transported to distribution centers,

and ultimately, customers. Realistic supply chains have multiple end

products with shared components, facilities and capacities.

Traditionally, marketing, distribution, planning, manufacturing, and

the purchasing organizations along the supply chain operated

independently. These organizations have their own objectives and

these are often conflicting. Marketing's objective of high customer

service and maximum sales revenue conflict with manufacturing and

distribution goals. Many manufacturing operations are designed to

maximize throughput and lower costs with little consideration for the

impact on inventory levels and distribution capabilities. Purchasing

contracts are often negotiated with very little information beyond

historical buying patterns. The result of these factors is that there is

not a single, integrated plan for the organization---there were as many

plans as businesses. Clearly, there is a need for a mechanism through

which these different functions can be integrated together. Supply

chain management is a strategy through which such an integration can

be achieved.

Supply Chain Decisions:

We classify the decisions for supply chain management into two broad

categories -- strategic and operational. As the term implies, strategic

decisions are made typically over a longer time horizon. These are

closely linked to the corporate strategy and guide supply chain policies

from a design perspective. On the other hand, operational decisions

are short term, and focus on activities over a day-to-day basis. The

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effort in these type of decisions is to effectively and efficiently manage

the product flow in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1)

location, 2) production, 3) inventory, and 4)distribution, and there are

both strategic and operational elements in each of these decision

areas.

Location Decisions:

The geographic placement of production facilities, stocking points, and

sourcing points is the natural first step in creating a supply chain.

Once the size, number, and location of these are determined, so are

the possible paths by which the product flows through to the final

customer. These decisions are of great significance to a firm since they

represent the basic strategy for accessing customer markets, and will

have a considerable impact on revenue, cost, and level of service

Production Decisions:

The strategic decisions include what products to produce, and which

plants to produce them in, allocation of suppliers to plants, which

plant to serve which customer market etc.As before, these decisions

have a big impact on the revenues, costs and customer service levels

of the firm. Operational decisions focus on detailed production

scheduling. These decisions include the construction of the master

production schedules, scheduling production on machines, and

equipment maintenance. Other considerations include workload

balancing, and quality control measures at a production facility.

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Inventory Decisions

These refer to means by which inventories are managed. Inventories

exist at every stage of the supply chain as either raw material, semi-

finished or finished goods. Their primary purpose to buffer against any

uncertainty that might exist in the supply chain. Since holding of

inventories can cost anywhere between 20 to 40 percent of their value,

their efficient management is critical in supply chain operations. It is

strategic in the sense that top management sets goals. However, most

researchers have approached the management of inventory from an

operational perspective. These include deployment strategies, control

policies - the determination of the optimal levels of order quantities

and reorder points, and setting safety stock levels, determining extra

material holding at each stocking location. These levels are critical,

since they are primary determinants of customer service levels.

Distribution Decisions:

How well a company can collaboratively manage the process of moving

goods from sourcing to the point of consumption in the market place.

It is concerned with the movement of a finished product/service to

customers. In physical distribution, the customer is the final

destination of a marketing channel, and the availability of the

product/service is a vital part of each channel participant's marketing

effort. It is also through the physical distribution process that the time

and space of customer service become an integral part of marketing,

thus it links a marketing channel with its customers (e.g. links

manufacturers, wholesalers, retailers).It also includes decisions

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related to transportation strategy, including frequency, routes, and

contracting.

PURPOSE OF THE PROJECT:

This project aims at exploring the efficient utilization of working

capital. As the title of the project suggests, there exits a close

relationship between supply chain and working capital management.

In a manufacturing industry a major component of the working capital

is inventory.

Out of the 4 major decision areas of supply chain management i.e. (i)

location, (ii) production, (iii) inventory, and (iv) Distribution, why

inventory has been considered for this project are discussed in detail

under the heading of scope of the study.

A lion’s share of the working capital is required for procurement of raw

material, component, work-in-progress. The concept of supply chain

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management is very much required to understand the effective

utilization of working capital investment in inventory. This project aims

at exploring the efficient utilization of working capital in inventories.

Project is undertaken to determine the required amount of investment

of working capital in inventories. A huge amount of money is tied up in

holding inventory. This project will be concentrating on CTV i.e. Color

Television. which holds more than 50% of the market and Value wise it

captures 80% of the total business. In this plant 90% of the production

capacity is used for manufacturing of CTV. Average monthly

production of CTV is approximately 30,000. For manufacturing CTV raw

materials are procured from outside. In this category they have more

than 70 models of televisions. Mainly these raw materials can be

classified into 4 broad categories. These are 1) picture tube, 2) front

cover & back cover 3) electronics and 4) packaging. For procurement

of such raw materials it requires to invest approximately 10crores per

month, which is a main portion of the working capital in KAIL.

While it is necessary to keep a certain amount of materials on hand to

satisfy the needs of customers, both commercial and consumer, its

required to maintain a balanced view of how much is too much. If it

has a lot of extra bulk in its inventory, it runs several risks. First of all,

it cuts into company’s net worth, showing as excess stock that is not

moving. Also, large quantities of stock mean that some of it could

become outdated or even expire, if any of it is perishable. Keeping the

minimum amount of stock necessary increases its bottom line and

reduces waste. It also allows you to provide a greater number of

products and respond more quickly, aiding in meeting the next goal of

good supply chain management. So, proper inventory management is

important to the financial health of the organization. On the one hand

out of inventories leads to interruption in production process,

therefore results in loss of sale on the other hand too much inventory

holding results in large inventory carrying cost in terms of opportunity

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cost of foregone interest; warehousing costs; damage and pilferage;

obsolescence; insurance etc. So, it is utmost essential to effectively

manage this important component of the cash cycle .Poor inventory

management results in illiquidity.

SCOPE OF THE STUDY:

Out of the 4 major decision areas of supply chain management i.e. (i)

location, (ii) production, (iii) inventory, and (iv)Distribution, area of

inventory has been considered for this project.

The reason for selecting inventory is as follows:

This project is carried at KAIL’s Salt lake factory, which is one of

the manufacturing plants of Videocon Group of companies. Both

location and production decisions are strategic in nature.

Generally these decisions are controlled by the Head office from

Aurangabad. So, its not a feasible area where any sort of analysis

can be made.

KAIL is a manufacturing unit. In case of Distribution decision

Videocon’s marketing division takes the responsibility of selling

the products, which are manufactured here to the ultimate

consumers.

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In a manufacturing unit like KAIL one of the key areas is

managing inventories, which is also an important part of supply

chain management. Inventories constitutes major portion of the

working capital. Effective use of working capital will contribute to

the operational efficiency of an organization; optimum use will

help to generate maximum returns on their investment.

Considering all the factors in the organization, inventory seems to be

one of the most crucial component of working capital as well as a

feasible area to analyze further for the aforesaid project.

OUTLINE OF THE WORK:

A substantial amount of working capital is mainly tied up in

holding these inventories. Specially, this project aims at

determining what quantities of inventories the company should

hold at any point of time. Working capital can be acquired

piecemeal to meet immediate needs as they arise that is Just-in-

Time (JIT). Such policy has advantage of reducing the average

investment in working capital, thereby minimizing the interest

charges, insurance expenses and storage cost associated in

holding the inventories. But this policy has its own

disadvantages. There will be increased ordering cost, problem in

maintaining independence in operation and variation in product

demand, inflexibility in production scheduling etc.


capital in inventories. Project is undertaken to determine the

required amount of investment of working capital in inventories,

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which is to be planned according to the production plan of the

specific month. It can also find out the redundant or extra holding

of material.

The fact that working capital only amounts to a few months’

supply means that the working capital cycle, a cycle running from

cash to inventories, inventories to work-in-progress, work-in-

progress to finished good finished goods to receivables and lastly

receivables to cash .So, it is utmost essential to control the

inventory in such a manner so that it provides maximum number

of inventory turns with lesser amount of working capital. More

the number of turns in a year, more the amount generated by

investing the same amount of working capital.

From a company’s point of view, excess working capital means

operating inefficiencies. In addition, unnecessary working capital

increases the amount of the capital charge. Currently, cost of

capital is 14%. The objective of this project is to maintain the

optimum balance of each of the working capital components. This

project’s aim will be to reduce unnecessary blockade of working

capital and reduce cost of on such investment.

Value of this each class of components should be well classified

according to ABC analysis. As per ABC classification items are

classified on the basis of their annual consumption value in an

organization. However, it is important to keep an overall

perspective. It is not cost-effective to closely manage a large

number of low value inventory lines, nor is it necessary. A usual

feature of inventories is that a small number of high value lines

account for a large proportion of inventory value. So , control

should be imposed on the basis of the value of these items.

ABC analysis helps to identify non-moving and slow moving

items included in inventory stock, where working capital is

unnecessarily tied up. They occupy space and consume carrying

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cost. These materials must be identified and must be taken care

of as soon as possible.

On the other hand, safety stock of each class of these

components is to be fixed up according to the value of these

items. High value item generally holds low percent of safety

stock.

Analytical review of inventories can help to identify areas where

inventory management can be improved. Slow moving items,

continual stock outs, obsolescence, stock reconciliation problems

and excess spoilage are signals that stock lines need closer analysis

and control.

LIMITATIONS OF THE STUDY:

Data tabulation and collation is a long stretched activity and

continuous updating in bill of material of each set makes the

process all the difficult. Therefore, the bill of material has to be

frozen at a certain point of time and further calculation is to be

done on the basis of those data collected up to that point of time.

As per the company policy sometimes few confidential data is not

disclosed.

KAIL is one of the important manufacturing units of Videocon

group. It is the main plant in Eastern India which handles 20% of

the total demand. In KAIL the production plan are given by Head

Office. In such situation KAIL has little flexibility to implement

any change at its own.

KAIL sends its account to the head office where it is prepared

taking all the units together. So, it is not possible to get the

individual financial results of this plant. In such situation various

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important data which were required for the analysis remained

unanswered.

KAIL is a manufacturing unit. It does not get the sale proceeds of

the goods which are produced here. It only gets that portion of

sale proceeds which is invested by KAIL i.e. cost of producing

those goods. Being a cost centre it runs on no profit-no loss

basis. So, it becomes difficult task to calculate return on

investment or return on total assets etc.

Because of time constraint it is not possible to go further deep

into the analysis.

From the various related websites financial data which has been

downloaded gives a picture of financial position of the Videocon

Appliances as a whole which includes all the products under the

brand name of Videocon that are manufactured by different units

across the country. So, analyzing current asset and current

liabilities position becomes an impossible task to accomplish

within such a short time span.

SOURCE OF DATA:

PRIMARY SOURCE:

Videocon is India’s first company to successfully implement my SAP

ERP version 2004.The primary source of data was the company

documents. This data includes all the data related with the

production quantity and value , bill of material, stock value and

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quantity, each month’s production plan etc. These data are fed in to

Microsoft Excel to facilitate easy tabulation and calculation.

SECONDARY SOURCE:

The secondary source are the different books, articles and

journals on supply chain, working capital management and

inventory control and their inter connection. Apart from this,

various research papers from internet have been studied to get

an idea to make analysis on the right path.

SCHEDULE:

This project includes several steps to accomplish the purpose of this

project successfully. During these 14 weeks training period various

time schedules has been framed to avoid any sort of delay,

postponement or interruption in project work. To give a brief idea

about the schedule there are couple of things which are highlighted

below.

LITERATURE STUDY:

Review and study of some literature which includes journals, company

documents, power point presentation, and various articles has been

done during the first couple of weeks of the project. This helps to

understand the data and meaningfully convert them into valuable

information to make further analysis on it.

INTRODUCTION WITH THE SAP SYSTEM:

KAIL uses my SAP since December, 2005 where the company stores all

its data and information. Some training has been given to learn how to

23


work on SAP, extract data from the company database and put into

Excel to make necessary calculation & analysis.

STUDY OF RESEARCH PAPER:

Various Research paper has been studied to find the close link

between the supply chain and working capital management. This has

been done continuously through out the project period to get an idea

to make analysis on the right path.

STUDY OF KAIL’S EXISTING INVENTORY SYSTEM:

Continuously study has been done to study the KAIL’s existing

inventory policy. Also an effort has been made to compare the existing

system with the proposed one.

MAKING ANALYSIS IN TWO PHASES:

For this project financial year 2006-2007 has been taken into

consideration. Last 12 months data has been analyzed here. In the

first phase from April to September were analyzed and then rest was

taken care of. This analysis was completed by the first week of May.

FINAL ANALYSIS AND PROJECT FINAL REPORT:

For last couple of weeks are utilized for careful and vivid study of the

project and reach to a conclusion. So that valuable points can be

brought to the notice.

PREPARATION OF FINAL PRESENTATION:

Last few days of project period would be utilized for the preparation of

the final presentation. Total work done in the project is expected to be

24


presented in the presence of company guide and faculty guide as per

the time schedule.

MAIN TEXT:

Videocon is the largest seller of Big Screen Color Televisions in India

and exports more than 1 million Color Televisions per year. Its monthly

revenue generated by sale of only CTV is Rs. 150 crores. 10% of this

revenue comes from the sale of CTV which are produced in this KAIL’s

Salt Lake factory.

In financial parlance, inventory is defined as the sum of the value of

raw materials, components, fuels and lubricants, spare parts,

maintenance consumables, semi processed materials and finished

goods at any point of time. The operational definition of inventory

would be the amount of raw materials, fuel and lubricants, spare parts

and semi processed materials to be stocked for the smooth running of

the business. Since, these resources are idle when kept in the store,

inventory is defined as an idle resources of any kind having an

economic value.

Inventories are maintained basically for the operational smoothness

which they can effect by uncoupling successive stages of production,

whereas the monetary value of inventory serves as a guide to indicate

25

http://en.wikipedia.org/wiki/India


the size of the investment made to achieve this operational

convenience. The material management department is expected to

provide this operational convenience with a minimum possible

investment in inventories. The objectives of inventories, operational

and financial , needless to say, are conflicting. The material

department is responsible for both stock outs as well large investment

in inventories. The solution lies in exercising a selective control and

application of inventory control techniques.

NORMS FOR INVENTORY IN KAIL:

The norms for inventory could be set by either the top management or

the material management department. The top management usually

sets monetary limits for investment in inventories. The material

management department has to allocate this investment to the

various items and ensure smooth functioning of company.

KAIL produces approximately 70 models of Color televisions every

month. For producing such huge variety of models almost 2000 types

of materials are used. So, where such variation of materials exits it

would be worthwhile if the materials are classified on the basis of their

values. So that management can focus their attention and effort where

investment is highest.

KAIL’S EXISTING INVENTORY POLICY:

KAIL produces variety models of color televisions for Videocon.

Product categories are

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14”, 20” conventional

15” TFT

21” conventional

21” TFT

21” slim

25” flat & conventional

29” flat

Chassis type:

70%= POC > Philips one chip

20%=TSB2 > Toshiba

6%= GIII > a version of Philips IC

4%=>MOC

PLAN PROCEDURE:

Plan is sent by VIDEOCON .Generally it sends 3monthly rolling plan.

Like in January the plan is of next 3months, it includes plan for Jan,

Feb and March.

Again in February plan, it includes plan for Feb, March, April.

In this plan they include picture tube size and chassis type and size.

Based on this chassis type KAIL can calculate the requirement for each

material (from BOM).

Every 20th of the month, Videocon Industries marketing division

depending on the market situation confirms KAIL’s production

schedule for the next month. If any change is to be made, it again

sends a revised plan to KAIL.

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KAIL’s total production can be classified in the following manner:-

10%= 29”

40%=21’ True Flat Television

5%=20”/21” conventional

40%= 15”True Flat Television

5%=14” conventional

Why Inventory is so important in KAIL for manufacturing

CTV:

This project will be concentrating on CTV i.e. Color Television which

holds more than 50% of the market and Value wise it captures 80% of

the total business. Average monthly production of CTV is

approximately 30,000.

In a manufacturing industry like Videocon, a large portion of working

capital is required to acquire its inventories. On an average it requires

to invest 10 crores per month to finance theses inventories.90 % of the

total cost is spent to get the materials.5% accounts for wage payments

and other direct cost .Rest 5% is for payment of various overhead

charges which includes factory overhead and administrative expenses.

Break up of total cost for manufacturing a CTV:

Inventory=90%

Waged and other direct Cost=5%

Overhead=5%

KAIL does not have to bear the cost of selling and distribution

overhead. The reason behind it is that KAIL is a manufacturing unit of

Videocon which manufactures various types of consumer durables.

28


KAIL directly can not sell the product to the consumers. After

production, finished goods are dispatched to the marketing division of

Videocon in Kolkata, which takes the responsibility of marketing those

goods in the market. KAIL dose not get the sale proceeds of the goods

which are produced here. KAIL only gets that portion of sale proceeds

which is invested by KAIL i.e. cost of producing those goods. Being a

cost centre KAIL’s main aim should be minimization of total cost.

ABC ANALYSIS:

ABC analysis is a basic analytical management tool which enables top

management to place the effort where the results will be greatest.

This technique is popularly known as ALWAYS BETTER CONTROL. The

annual consumption values help the management to exercise selective

control and focus its attention only on a few items when there are

lakhs of items in stores. The annual consumption value analysis of any

organization would indicate that a handful of top high value items-less

than 10% of total number-will account for a substantial portion of

about 75% of the total consumption value, and these few vital items

are called “A” items which need careful attention of the management.

Similarly a large amount of bottom items over 70 % of the total

number called the trivial many-account only for about 10% of the

consumption value and are known as the “C” class. The items that lie

between the top and bottom are called the “B” category.

However, it is important to keep an overall perspective. It is not cost-

effective to closely manage a large number of low value inventory

lines, nor is it necessary. A usual feature of inventories is that a small

number of high value lines account for a large proportion of inventory

value. So , control should be imposed on the basis of the value of

these items. ABC analysis helps to identify non-moving and slow

29


moving items included in inventory stock, where working capital is

unnecessarily tied up. They occupy space and consume carrying cost.

These materials must be identified and must be taken care of as soon

as possible.

METHODS FOLLOWED FOR ABC ANALYSIS:

For ABC analysis last 24 months data has been considered.

Downloaded the each months’ production plan from the system

Copy the product code from the production plan & feed into my

sap to get the Bill of Material. After that data are used to make a

model matrix against each month’s plan.

Using this model matrix each items consumption quantity is

calculated.

Multiplying the quantity with MAP (moving average price) value

of these items are calculated.

Now, these data are used to classify the materials in to A, B, C

category.

Here, consumption value of each items for the last 24 months’ i.e April

2005 to March,2007 has been taken into consideration.

After analyzing I tried to identify the various categories of items used

in production process. It has been shown in a tabular form.

30


To give a more real picture here 3month’s consumption value has been

selected where there is fluctuation in the consumption value

depending on the market situation.

February,2007 when consumption value is high depending on the

market situation.

March, 2007 when consumption value is moderate

CATEGORY ITEMS

A Picture tube, buffer, packing box,

front cover, back cover, tuner, FBT,

speaker, Remote, SMPS

B Mains cord, IC,MICON, heat sink,

transistor

etc.

C Resistor, CFR, Tape , Felt,coil,

screw, header ,

Fuse, diode, knob, sticker etc.

TOTAL A B C

VALUE

(in

crores)

14.04 10.53 2.11 1.4

(In %) 75% 15% 10%

Quantity 1791 101 181 1509

(In %) 5.60% 10.10% 84.25%

31


December, 2006 when consumption value is low.

TOTAL A B C

VALUE

(in

crores)

10.37 7.77 1.55 1.03

(In %) 75% 15% 10%

Quantity 1461 74 141 1246

(In %) 5.06% 9.65% 85.20%

TOTAL A B C

VALUE

(in

crores)

6.93 5.19 1.047 .693

(In %) 75% 15% 10%

Quantity 1402 80 143 1179

(In %) 5.70 % 10.19% 84.09%

32


ABC ANALYSIS

0102030405060708090

A B C

VA

LU

E,Q

UA

NT

ITY

VALUE

QUANTITY

EXISTING INVENTORY POLICY FOR EACH OF THE

“A”CATEGORY ITEMS IN KAIL:

PICTURE TUBE

Videocon is the only manufacturer of CRT glass shells for CPT i.e. color

picture tube and controls 80% of the CPT production across the world.

Videocon sends this picture tube according to the next month’s plan

from Aurangabad or directly from manufacturing centers to KAIL. Since

Videocon has control on manufacturer of CPT in India,there is no

problem for supply of CPT to KAIL .The CPT is received in the lot of full

truck load. On an average KAIL holds 15 days stocks of CPT in hand.

33


These 15 days stock includes 7 days transit time from Aurangabad to

Kolkata.

CKD kit (complete knocked down kit)

CKD kit contains various types of materials which are sold together as

a kit. CKD kit is sent by Videocon from Aurangabad or directly from the

manufacturer. The items included in that kit come from the overseas

sources like EAST KIT ELECTRONIC MANUFACTURING CO. LTD from

China. EAST KIT along with their own manufactured materials, acquires

different materials from different countries across the world (like

transistor from Taiwan, IC.MICON from Malayasia,opto-coupler from

Japan etc) & after export worthy packing it is despatched directly to

KAIL and other companies. So, in this case as materials are procured

from different part of the world so it is quite obvious to place the order

for CKD long before the actual requirement arises.

Here in KAIL it goes for 3months rolling plan. Approximately it gives an

idea to the manufacturer about their expected requirement for the

next 3months.According to that they initiate procurement &

production plan. Delivery depends on the schedule given by KAIL to

the manufacturer. In case there is less requirement of CKD in a specific

month they carry forward the balance to the next month and if there

are more requirements in the next month then this balance gets

adjusted.

KAIL’s stock policy in case of CKD is 5to 7days holding.

It is procured in bulk of 5000 or 10000. 2 to 3 such consignments in a

month meet the demand. This material takes little space to store. This

company deals with volume. So it goes for capacity booking. For

sophisticated item like CKD it generally goes for FCL i.e. full container

loading.

34


CKD items=FBT, tuner, SMPS, Remote etc in A items.

FRONT COVER AND BACK COVER:

Front cover and back cover are supplied by Videocon directly from

Aurangabad. So, Videocon sends it as per the production schedule .It

is sent from Aurangabad in lot sizes of 1500 to 1600 depending on full

truck load quantity. Since F/C, B/C occupy lot of space, chassis assy.

Production schedule is finalized on the basis of availability of F/C, B/C.

KAIL’s stock policy for F/C &B/C is JIT (just in time) but it is not always

possible to maintain JIT policy since materials come from distant place.

Regarding front cover and back cover approximately is 15 day’s

holding which includes 7 days holding for obsolete items. Since they

are dependant on model and size of the CTV they become obsolete

within a very short span of time.

PACKING BOX:

Packing box is supplied by the local suppliers. But the raw material,

paper, which are used to produce these packing boxes are procured

from North India by the vendor. So sufficient time is given to the

supplier before delivery date. Generally by 15th of each month next

month’s requirement for packing box is forecasted to them and 80% of

which are confirmed by KAIL. Based on that forecast, suppliers start

production but delivery the same according to the schedule given by

KAIL. Supply is strictly maintained “JUST IN TIME”. Materials come in

lot size of 100 to 1000 units.

BUFFER:

35


Buffer is procured from local supplier. As it occupies space, orders

depend on the monthly plan as and when basis. Company stock policy

is “JUST IN TIME” but since company produces 60 +/- 5 types of CTV

models in a month about 7 day’s stock is kept. Generally 7days prior

notice is given to the suppliers.

SPEAKER:

Speakers are purchased from North India. For producing each unit of

CTV 2 units of speakers are required. In some models 4 units of

speakers are required. There exists long term yearly agreement with

the suppliers. As it occupies very little space KAIL orders in bulk. Order

size varies from 15000 to 16000.So there are 4 to 5 orders per month.

PROPOSED INVENTORY STRATEGY:

To formulate an inventory strategy first the cost and the

characteristics of the items should be considered.


capital in inventories. Project is undertaken to determine the required

amount of investment of working capital in inventories, which is to be

planned according to the production plan of the specific month. It can

also find out the redundant or extra holding of material. The fact that

working capital only amounts to a few months’ supply means that the

working capital cycle, a cycle running from cash to inventories,

inventories to work-in-progress, work-in-progress to finished good

finished goods to receivables and lastly receivables to cash .So, it is

utmost essential to control the inventory in such a manner so that it

36


provides maximum number of inventory turns with lesser amount of

working capital. More the number of turns in a year, more the amount

generated by investing the same amount of working capital.

From a company’s point of view, excess working capital means

operating inefficiencies. In addition, unnecessary working capital

increases the amount of the capital charge. The objective of working

capital management is to maintain the optimum balance of each of the

working capital components.

Inventory management is an important aspect of working capital

management because inventories themselves do not earn any

revenue. Holding either too little or too much inventory incurs costs.

Costs of carrying too much inventory are:

♠ Opportunity cost of foregone interest; warehousing costs; damage

and pilferage; obsolescence; insurance etc.

Costs of carrying too little inventory are:

♠ Stock out costs: lost sales; delayed service etc.

Ordering costs:

♠freight; order administration; loss of quantity discounts etc.

Carrying costs can be minimized by making frequent small orders but

this increases ordering costs and the risk of stock-outs. Risk of stock-

outs can be reduced by carrying "safety stocks" (at a cost) and re-

ordering ahead of time.

EOQ ASSUMPTIONS :

37


1. Demand for the item is known and constant.

2. Lead time is known and constant. (Lead time is the amount of

time that elapses between when the order is placed and when it

is received.)

3. The cost of all units ordered is the same, regardless of the

quantity ordered (no quantity discounts).

4. Ordering costs are known and constant (the cost to place an

order is always the same, regardless of the quantity ordered).

5. When an order is received, all the items ordered arrive at once

(instantaneous replenishment).

6. Since there is certainty with respect to the demand rate and the

lead time, orders can be timed to arrive just when we would have

run out. Consequently the model assumes that there will be no

shortages.

Based on the above assumptions, there are only two costs that will

vary with changes in the order quantity,

(1) The total annual ordering cost and

(2) The total annual holding cost. Shortage cost can be ignored

because of assumption 6. Furthermore, since the cost per unit of all

items ordered is the same, the total annual item cost will be a constant

and will not be affected by the order quantity.

EOQ SYMBOLS:

D = annual demand (units per year)

S = cost per order (Rupees per order)

H = holding or carrying cost per unit per year (Rupees to carry one

unit in inventory for one year)

Q = order quantity

CLASSIC ECONOMIC ORDER QUANTITY (EOQ) MODEL

38


The only costs that need to be considered for the EOQ model are the

total annual ordering costs and the total annual holding costs. These

can be quantified as follows:

ANNUAL ORDERING COST

The annual cost of ordering is simply the number of orders placed per

year times the cost of placing an order. The number of orders placed

per year is a function of the order size. Bigger orders means fewer

orders per year, while smaller orders means more orders per year. In

general, the number of orders placed per year will be the total annual

demand divided by the size of the orders. In manufacturing unit like

KAIL, the order cost would include the time to initiate the work order,

time associated with picking and issuing components excluding time

associated with counting and handling specific quantities, all

production scheduling time, machine set up time, and inspection time.

In short,

Total Annual Ordering Cost = (D/Q) S

39


ANNUAL HOLDING COST

The annual cost of holding inventory is a bit trickier. If there was a

constant level of inventory in the warehouse throughout the year, we

could simply multiply that constant inventory level by the cost to carry

a unit in inventory for a year. Unfortunately the inventory level is not

constant throughout the year, but is instead constantly changing. It is

at its maximum value (which is the order quantity, Q) when a new

batch arrives, then steadily declines to zero. Just when that inventory

is depleted, a new order is received, thereby immediately sending the

inventory level back to its maximum value (Q). This pattern continues

throughout, with the inventory level fluctuating between Q and zero.

To get a handle on the holding cost we are incurring, we can use the

average inventory level throughout the year (which is Q/2). The cost of

carrying those fluctuating inventory levels is equivalent to the cost

that would be incurred if we had maintained that average inventory

40


level continuously and steadily throughout the year. That cost would

have been equal to the average inventory level times the cost to carry

a unit in inventory for a year. In short,

Total Annual Holding Cost = (Q/2)H

TOTAL ANNUAL COST

The total annual relevant inventory cost would be the sum of the

annual ordering cost and annual holding cost, or

TC = (D/Q)S + (Q/2)H

This is the annual inventory cost associated with any order size, Q.

METHODS FOLLOWED FOR CALCULATING OF EOQ IN KAIL:

Here this EOQ model has been used to help in controlling the

working capital investment in inventories efficiently. The best

ordering strategy requires balancing the various cost factors to

ensure the organization incurs minimum inventory costs.

In the simplest form of this EOQ model assumes the annual

demand or usage for a particular item is known with certainty.

Here in KAIL average annual demand of CTV can be taken as

300000 units.

It also assumes that orders to replenish the inventory of an item

are filled instantaneously. Given a known demand and a zero lead

41


time for replenishing inventories , there is no need for a company

to maintain additional inventories or safety stock to protect itself

against stock out.

But in actual practice when competition is so intense it is not

feasible to run a business without maintaining any safety stock.

Because, instant replenishment of inventories is not a realistic

assumption. According KAIL’s policy for “A” category items, an

quantity equal to 5% of monthly demand of each item is kept as a

safety stock.

In this analysis keeping the safety stock norms according to KAIL

I have tried find out average holding of each materials and cost

associated with holding of these materials.

In case of finding out of average inventory holding safety stock

has been taken into consideration.

42

Avg. Inventory=Q/2

Without any Safety stock


Average inventory holding=(Order size+ safety stock)/2

EOQ

Each of this “A” items has been analysed separately and also

compared to the KAIL’s existing policy.

In finding out total cost of holding inventory per annum material

cost remains same. Because, it has been observed that on such a

large scale production price negotiation with the suppliers is

done on yearly agreement basis. Any discounts or rebate in price

has already been adjusted.

PICTURE TUBE:

For producing 1unit of CTV 1unit of picture tube is required. So, its

annual demand can be taken as 300000units.

Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

43

Avg. Inventory

Safety Stock


size(units)

PIC

TUBE

300000 360 20 1800 360 775 800

**safety stock=average monthly consumption*5%

Here, Safety stock for picture tube=(300000/12)*5%

=1250 units

* Average inventory= (Order size +safety Stock)/2

Pic

Tube

Annual

demand

Order

Size

No of

orders

Ordering

cost

(OC)

Carrying

cost

p.u(CC)

Safety

stock**

Avg

inventory*

Total

carrying

cost

Total

OC&CC

EOQ 300000 775 387 139355 360 1250 1013 364500 503855

KAIL 300000 800 375 135000 360 1250 1025 369000 504000

Difference in Cost:

KAIL’s policy As per EOQ Model difference

503855 504000 145

From the above calculation it is observed that the order size under

KAIL’s existing policy and proposed policy are more or less same which

leads to a very negligible amount of difference in total cost i.e

Rs145.So, there is no need to change the existing policy.

44


BUFFER:

For producing 1unit of CTV 1unit of buffer is required. So, its annual

demand can be taken as 300000units.

Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

size(units)

Buffer 300000 360 35 50 17.5 3513 1000


Here, Safety stock for buffer =(300000/12)*5%

=1250 units


Buffer Annual

demand

Order

size

No of

orders

Ordering

cost

(OC)

Carrying

cost

p.u(CC)

Safety

stock**

Avg

inventory*

Total

carrying

cost

Total

OC&CC

EOQ 300000 3513 85 30600 17.5 1250 2382 41685 72285

KAIL 300000 1000 300 108000 17.5 1250 1125 19688 127688

Difference in Cost:

45


KAIL’s policy As per EOQ Model difference

127688 72285 55403

Although the cost under proposed method is much less than KAIL’s

existing policy, but considering other important factors it will be

advisable to follow the existing policy.

The reasons behind it are highlighted as follows:

Buffer is procured from local supplier So, lead time is much less

in this case. So, no need to go for large order size.

Moreover, it occupies space. So, large stocking of buffer will lead

to higher carrying cost. Company stock policy in this case

i.e“JUST IN TIME” would be the appropriate one.

PACKING BOX:

For producing 1unit of CTV 1unit of packing box is required. So, its


Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

size(units)

Packing

Box

300000 360 20 150 30 2683 1000


Here, Safety stock for packing box = (300000/12)*5%

46


=1250 units


Packing

Box

Annual

demand

Order

Size

No of

orders

Ordering

cost

(OC)

Carrying

cost

p.u(CC)

Safety

stock**

Avg

inventory*

Total

carrying

cost

Total

OC&CC

EOQ 300000 2683 112 40320 30 1250 1967 59010 99330

KAIL 300000 1000 300 108000 30 1250 1125 33750 141750

Difference in Cost:

KAIL’s policy As per EOQ Model Difference

141750 99330 42420

Packing box is supplied by the local suppliers. In KAIL Supply of

packing Box is strictly maintained by “JUST IN TIME” system. But in

case of ordering in lot sizes of 1000units there are several number of

orders to be placed in a year which leads to increase in ordering cost.

On the other hand, although carrying cost according to the proposed

system of ordering is higher than the existing one. But in total of

ordering and carrying cost are much less than existing policy. So, sit

will be recommendable to change the existing policy to avoid the

unnecessary blocking of working capital.

FRONT COVER:

For producing 1unit of CTV 1unit of front cover is required. So, its annual demand can be taken as

300000units.

47


Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

size(units)

Front

cover

300000 360 30 175 52.5 2028 0


Here, Safety stock for front cover= (300000/12)*5%

=1250 units


Front

Cover

Annual

demand

Order

size

No of

orders

Ordering

cost

(OC)

Carrying

cost

p.u(CC)

Safety

stock**

Avg

inventory*

Total

carrying

cost

Total

OC&CC

EOQ 300000 2028 148 53280 52.5 1250 1639 86048 139328

KAIL 300000 1600 188 67680 52.5 1250 1425 74813 142493

Difference in Cost:


142493 139328 3165

BACK COVER:

48


For producing 1unit of CTV 1unit of back cover is required. So, its



Here, Safety stock for Back cover=(300000/12)*5%


Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

size(units)

Back

cover

300000 360 30 175 52.5 2028 1600

=1250 units

Difference in Cost:


142493 139328 3165

AS calculation for front cover and back cover are same the analysis for

them also would be same. From the above table it can be seen that

there are not major differences in the order size. In KAIL’s policy

ordering costs are bit higher than the proposed system; but as front

cover and back cover occupies space this difference in ordering cost

49


gets adjusted with the increase in carrying cost under EOQ model. So,

as a whole there are hardly any difference in total cost.

SPEAKER:

For producing 1unit of CTV 2units of speakers are required.

So, its annual demand can be taken as (300000units*2)

=600000units.

Annual

demand

Ordering

cost p.u

Carrying

cost (%)

Price(in

Rs)

Carrying

cost(in Rs)

EOQ

(units)

KAIL’s

Order

size(units)

Speaker 600000 360 20 70 14 5555 15000


Here, Safety stock for picture tube=(600000/12)*5%

=2500 units

Speake

r

Annual

demand

Order

Size

No of

orders

Ordering

cost

(OC)

Carrying

cost

p.u(CC)

Safety

stock**

Avg

inventory*

Total

carrying

cost

Total

OC&CC

EOQ 600000 5555 108 38880 14 2500 4028 56392 95272

KAIL 600000 15000 40 14400 14 2500 8750 122500 136900


Difference in Cost:

50



136900 95272 41628

It is clearly seen that there is a huge difference in two order size. As a

result, there is a significant difference in total cost. Although under

proposed methodology cost is much less but after taking other market

variables into consideration KAIL’s policy is the most suitable one. The

reasons behind it are highlighted as follows:

Competition in the market so intense that sometimes supply of

speakers may fall short of such huge demand in the market. So in

such situation KAIL goes for strategic stock policy for speakers

which means build stock to avoid competition.

Speakers are very delicate and fragile material .So when it is

brought from the suppliers’ place it is transported in a delicate

transport in bulk. Because it can not be transported with other

materials in order to avoid damage of such brittle materials.

EXTRA MATERIAL HOLDING:

Further I have continued my studies by finding out the extra holding of

materials which lies in the hands of the company above its stock

holding policy. This showed that where unnecessary working capital

has been blocked. Here last 6months data has been taken to find extra

holding of inventory.

METHODOLOGY FOLLOWED FOR CALCULATING EXTRA HOLDING OF THE

MATERIALS:

51


To find out the extra holding of each material, the stock at the

beginning of each month has been collected from the company

data base.

According to company stock norms an average inventory holding

is maintained on the basis of per day consumption. Like in case of

picture tube KAIL holds 15days consumption. For “A” category

material this has been shown in a tabular form.

Material Holding in

days

Picture tube 15days

Buffer 7days

Packing box 7days

Front cover 15days

Back cover 15days

Speaker 30days

The production figure for the above said period has been taken

for finding out the actual requirement of these materials

according to its plan schedule.

Production figure has been shown in a tabular form.

MONTH PRODUCTN

OCT,06 17296

NOV,06 16663

DEC,06 16468

JAN,07 21089

FEB,07 22689

MARCH,07 24229

52


Comparing the actual requirement with the company stock

finds the extra holding for that particular material.

Dividing the extra material holding by per day consumption

gives extra holding in terms of days.

PICTURE TUBE:

Stock policy: 7days holding

For making 1set of CTV 1unit of picture tube is required. Multiplying

the production figure with 1,monthly requirement of material has been

derived.

Extra holding of Picture Tube

-5

0

5

10

15

20

25

Oct,06

Nov,06

Dec,06

Jan,

07

Feb,0

7

Mar

ch,0

7

Month

Ext

ra s

tock

in

no

of

day

s co

nsu

mo

tio

n

Picture Tube

Like in case of picture tube KAIL holds 15days consumption. It shows

wide fluctuation in holding of picture tube. This is because of the fact

that there is seasonal variation in the demand for CTV. In September

production figure was quite high. It reached 37000 units of production

53


during the Puja season, which is the biggest festival in Eastern region.

Again when market goes down stock figures proves to be much higher

than the actual requirement. This continued for next 2 months also.

When in January production figure rises there was no extra holding of

material. Rather it became a negative figure. But, positive note is that

control was imposed properly and extra holding was reduced and very

close to the perfect position in the month of March.

BUFFER:

Stock policy: 7 days holding

For making 1set of CTV 1unit of buffer is required. Multiplying the

production figure with 1, monthly requirement of material has been

derived.

54


Extra holding of buffer

0

2

4

6

8

10

Oct,06

Nov,06

Dec,06

Jan,

07

Feb,0

7

Mar

ch,0

7

Month

Ext

ra s

tock

in

no

of

day

s co

nsu

mp

tio

nBuffer

In case of buffer stock position is much under control. In the month of

October and November although stock is higher than the requirement,

in January its just the perfect figure. In following months also control

was there. So, here working capital blockage is much less than the

picture tube.

Packing Box:

Stock policy: 7days holding

For making 1set of CTV 1unit of packing box is required. Multiplying

the production figure with 1monthly requirement of material has been

derived.

55


Extra holding of Packing Box

01

23

45

67

8

Oct,06

Nov,06

Dec,06

Jan,

07

Feb,0

7

Mar

ch,0

7

Months

Ext

ra s

tock

in

no

of

day

s co

nsu

mp

tio

n

Packing Box

In case of packing box position is much under control. In the month of

October and November although stock is little higher than the

requirement; but, in January its just the perfect figure. In following

months also control was there. So, here working capital blockage is

much less than the picture tube.

Front Cover and Back cover:


For making 1set of CTV 1unit of front cover and 1unit of back cover are

required. Multiplying the production figure with 1, monthly

requirement of material has been derived.

56


Extra holding of F/C & B/C

05

1015202530

Oct,06

Nov,06

Dec,06

Jan,

07

Feb,0

7

Mar

ch,0

7

Months

Ext

ra s

tock

in

no

of

day

s co

nsu

mp

tio

n

F/C

B/C

In case of front cover and back cover holding of material was

quite high in the first 2 months. KAIL’s stock policy for front

cover and back cover is JIT (just in time) but it is not always

possible to maintain JIT policy since materials come from distant

place. Regarding front cover and back cover approximately is 15

day’s holding which includes 7 days holding for obsolete items.

Since they are dependant on model and size of the CTV they

become obsolete within a very short span of time. So, according

to the market demand and customer preference model changes

so frequently that it leads to accumulation of stock of obsolete

materials. These are to be disposed off as soon as possible.

Speakers:


57


For making 1set of CTV 2units of speaker is required. Multiplying the

production figure with 2, monthly requirement of material has been

derived.

Extra holding of Speakers

0

5

10

15

20

25

Oct,06

Nov,06

Dec,06

Jan,

07

Feb,0

7

Mar

ch,0

7

Months

Ext

ra s

tock

in

no

of

day

s co

nsu

mp

tio

n

Speakers

Through out the 6months speakers holding are much higher than the

actual requirement. The reason behind it can be cited as follows:


speakers may fall short of such huge demand in the market. So in

such situation KAIL goes for strategic stock policy for speakers

which means build stock to avoid competition.

58


Speakers are very delicate and fragile material .So when it is

brought from the suppliers’ place it is transported in a delicate

transport in bulk. Because it can not be transported with other

materials in order to avoid damage of such brittle materials.

“B” AND “C” CATEGORIES OF MATERIALS:

In KAIL there is hardly any difference in the stock policy for “B” and

“C” category of materials.

Inventory monitoring approaches for “B” & “C” categories of items:

Continuous Review or fixed order quantity system (Q-system):

This approach maintains a constant order size but allows the time

between the placements of order to vary. This method of monitoring

inventory is sometimes referred to as Perpetual Review system. When

the inventory level reaches the reorder level, an order is placed. On

hand inventory serves as order trigger(R).This type of system provides

closer control over inventory items since the inventory levels are

under perpetual scrutiny.

“B” categories of items are Mains cord, IC, MICON, heat sink ,

transistor etc.

“C” categories of items are Resistor, CFR, Tape, Felt, coil, screw,

header, Fuse, diode, knob, sticker etc.

59


Periodic Review or Fixed-order period system (P-system):

This approach maintains a constant time between the placements of

order, but allows the order size to vary. This method of monitoring

inventory is sometimes referred to as a fixed interval system or fixed

periods of time. The amount that is ordered at a particular time point

is the difference between current inventory level and a predetermined

target inventory level. If the demand has been low during the prior

time interval, inventory levels will be relatively high and the amount to

be ordered will be relatively low.

KAIL follows combination of both the P and Q methods for its B and C

category materials. Periodic review is made monthly for each and

every material. Along with that if it finds stock level of any material

reaches the reorder level an order is triggered.

Average material holding for these materials is 1month’s.

NON-MOVING AND SLOW MOVING INVENTORIES:

Materials that are not consumed for a long period of time

approximately for 6months are known as non-moving materials.

Similarly materials that are consumed very slowly and in small

quantities in the production process is known as slow moving

materials. Whereas , those materials and equipments that are not

damaged and which have economic worth but are no longer useful for

the company’s operation owing to reasons such as change in product

line are known as obsolete materials. Non-moving and slow-moving

materials occupy space and carrying cost. In KAIL the slow-moving

materials are first identified. Then they are taken under observation

for the next 3months.If the material still remains as it is then they are

called non-moving materials. Then for the next 3monthsagain these

materials are taken under observation .Finally if still remain non-

60


moving and are no longer needed for production of any other set then

these materials are termed as obsolete materials.

RECOMMENDATION:

Color Picture Tube:

They are the most important and the most critical item in the

complete process. They are received directly from the

manufacturers and are not dependant on the models. They are

received on a monthly order basis in a continuous flow KAIL’s

existing policy of ordering picture tube is almost same with the

EOQ model. So, there is no need to change the present method.

An important aspect here is that since the picture tubes are

very fragile they have a high rate of breakage and a high rate of

goods is returned as rejected lots. Proper care should be taken

to deal with the large number of rejections in every received lot.

(Rejection list has been given in the Appendices- , pg no. 73)

Again in case extra material holding picture tube’s stock is

much higher than the actual requirement, where a large portion

of working capital unnecessarily is tied up. So ,management

should immediately take some control measure to reduce this

holding level.

BUFFER:

61


Although the cost under proposed method is much less than KAIL’s

existing policy, but considering other important factors it will be

advisable to follow the existing policy.

The reasons behind it are highlighted as follows:

Buffer is procured from local supplier So, lead time is much less

in this case. So, no need to go for large order size.

Moreover, it occupies space. So, large stocking of buffer will lead

to higher carrying cost. Company stock policy in this case i.e

“JUST IN TIME” would be recommended.

Extra material holding of buffer is under control, so no such

recommendation for buffer.

FRONT COVER ND BACK COVER:

There are not major differences in the order size between KAIL’s

existing policy and new system. In KAIL’s policy ordering costs

are bit higher than the proposed system; but as front cover and

back cover occupies space this difference in ordering cost gets

adjusted with the increase in carrying cost under EOQ model.

So, as a whole there are hardly any difference in total cost .

In case of front cover and back cover holding of material was

quite high in the first 2 months. So , strict control on such stock

is highly recommended.

Since they are dependant on model and size of the CTV they

become obsolete within a very short span of time. Stock policy

for front cover and back cover should be JIT (just in time).

PACKING BOX:

Packing box is supplied by the local suppliers. In KAIL Supply of

packing Box is strictly maintained by “JUST IN TIME” system.

62


But in case of ordering in lot sizes of 1000units there are

several numbers of orders to be placed in a year which leads to

increase in ordering cost. On the other hand, although carrying

cost according to the proposed system of ordering is higher

than the existing one. But in total of ordering and carrying cost

are much less than existing policy. So, it will be recommendable

to change the existing policy to avoid the unnecessary blockage

of working capital.

SPEAKERS:

There is a huge difference in two order size. As a result, there is a

significant difference in total cost. But considering the following

factors KAIL’s existing policy will be recommendable


speakers may fall short of such huge demand in the market. So

in such situation KAIL goes for strategic stock policy to avoid

stock out position.

But proper care should be taken to reduce the huge extra

holding of speakers.

“B” AND “C” CATEGORY OF MATERIALS:

Orders are placed every month with a holding of 1month’s stock.

These types of materials are required for manufacturing almost all

type of CTV. So, their monthly requirement is almost confirmed.

In such case, instead ordering every month KAIL can order in bulk for 2

or 3 months consumption. As a result, time and cost both can be saved

from monthly review of stock.

63


But considering the following factors KAIL’s existing policy will be

recommendable:

In case of huge stock of these materials there is high possibility

of mishandling material, which may result in wastage, misuse,

rejection etc.

Moreover, accumulation of 2 /3months stock will be very space

consuming as well. It will lead to increase in carrying cost.

Depending upon the market demand and customer preference

model and size of the television change so frequently that any

time the stock of material can be obsolete.

64


APPENDICES:ABC Analysis:Details of each of the “A”items:

CO

MP

ON

EN

T

DE

SC

RIP

TIO

N

UO

M

MA

P

TO

TA

L

VA

LU

E

PIC TUBE 1100008119 PICTUBE,21"TFT,YAMMED,GENERIC PC 1,687.80 10075 170045851100008928 PIC TUBE,15"CTV,YAMMED,GENERIC PC 1,577.02 5375 84764831100008931 PIC TUBE,29"CTV,TFT,YAMMED,GENERIC PC 3,983.95 1295 51592161100008117 PIC TUBE,21"CTV,YAMMED,GENERIC PC 1,622.20 2884 46782741100008116 PIC TUBE,14"CTV,YAMMED,GENERIC PC 995.23 3450 34335441100008144 PIC TUBE,20"CTV,YAMMED,GENERIC PC 1,569.92 1900 29828481100017234 PIC TUBE,25"CTV,TFT,GENERIC PC 2,651.04 825 21871081200001322 ASSY,PICTURE TUBE,21"TFT PC 2,190.71 619.9 1358060

45280117FRONT COVER

1200003648 FRONT COVER,22 NP,HY GREY+VD SILVER PC 157.29 2752 4328221200003664 FRONT COVER,PANASONIC-21"/22NP,HIPS L G PC 123.72 2600 3216721200001567 FRONT COVER,3643QS,PEARL GREY(JK2000) PC 123.91 2200 2726021200005623 FRONT COVER,5502QS,VD SILVER PC 186.95 1350 2523831200001568 FRONT COVER,3643QS/3653QS,HIPS BLACK PC 102.33 2200 2251261200001910 FRONT COVER,5502QS,HIPS,LIGHT GREY PC 161.27 1350 2177151200004775 FRONT COVER,HY21C01,BURNISH SILVER PC 157.8 1366 2155651200008175 FRONT COVER,15SL,INTR.SER,MINT BLUE,VD S PC 104.46 2000 2089201200001039 ASSY,FRONT COVER,HY29FW01 PC 1,101.15 175 1927011200011812 FRONT COVER,HY22F07,B.SILVER+SANSUI BLAC PC 172.01 1096 188606

65


1200004931 FRONT COVER,HY21C01,HIPS LIGHT GREY PC 119.09 1500 1786351200014036 FRONT COVER,K2K21,SANSUI BLACK+SILVER PC 157.41 1084 1706201200005042 FRONT COVER,5443QS,UNPTD,LIGHT GREY PC 151.58 1102 1670521200006628 FRONT COVER,K2K21",HIPS LIGHT GREY PC 122.15 1325 1618491200012958 FRONT COVER,HY22F08,AKAI SILVER PC 159.87 1000 1598701200008266 FRONT COVER,HY22F01T,HIPS LIGHT GREY PC 102.65 1546 1586991200003644 FRONT COVER,15SL,SONY,NEW,HIPS, LIGHT GR PC 78.71 2000 1574201200012962 FRONT COVER,HY22F08,HIPS BLACK PC 140.72 1089 153256

1200001599FRONT COVER,HR2K-WT,MET.SILVR+AKAI S.GRY PC 201.71 751 151452

1200001598 FRONT COVER,HR29,HIPS LIGHT GREY PC 221.51 675 1496151200010992 FRONT COVER,15NP,VD SILVER+HY.GREY.CRET PC 96.23 1525 1467221200001933 FRONT COVER,HARDROCK2000, HIPS L GREY PC 163.56 843 1379321200001587 FRONT COVER,FIRST20DP-P,BURNISH SILVER PC 113.87 1200 1366441200011968 FRONT COVER,K2K21DTH,B.SILVER+S.BLACK PC 156.91 861 1351341200001603 FRONT COVER,HY22FW01,BURN SILV+HY GREY PC 190.46 700 1333221200005619 FRONT COVER,7641QS,VD SILVER PC 251.25 530 1330591200011528 FRONT COVER,HY22F07,HIPS LIGHT GREY PC 131.48 1000 1314801200008174 FRONT COVER,22SL,INTR.SER,MINT BLUE,VD S PC 146.05 900 1314451200003939 FRONT COVER,IS29G,HIPS LIGHT GREY PC 167.58 783 1312471200003874 FRONT COVER SUPER-14,HIPS,LIGHT GREY PC 93.64 1388 1300181200011815 FRONT COVER,S2S21,SILVER/UV BLACK PC 159.23 767 1221851200003650 FRONT COVER,5153QST,PEARL GREY PC 165.8 700 116060

1200003669FRONT COVER,SY21SUPEREYEP,BURNISH SILVER PC 171.29 675 115621

1200001915 FRONT COVER,7631QS,HIPS LIGHT GREY PC 236.38 484 114329

1200003666FRONT COVER,SY14SUPEREYEP,BURNISH SILVER PC 120.92 900 108828

1200001902 FRONT COVER,21X50,HIPS LIGHT GREY PC 169.8 634 1077101200001946 FRONT COVER,SUPER21/TECHNO21,HIPS L GY PC 142.87 675 96437

6264749BACK COVER

1200003592 BACK COVER,22SL/NP,C2C21/B2B21,HIPS M GY PC 200.52 6075 12181591200011111 BACK COVER,B2B21,SANSUI BLACK PC 223.64 5175 11573371200000653 BACK COVER,22WF/FS/MKII,COOL GREY PC 266.15 1350 3593031200004893 BACK COVER,5448QST,COOL GREY PC 227.32 1500 3409801200012961 BACK COVER,HY22F08,BLACK PC 254.18 1300 3304341200001382 BACK COVER,HY29FW01 COOL GREY PC 397.43 830.3 3299801200003591 BACK COVER,22SL/NP,COOL GREY PC 223.25 1465 3270351200006485 BACK COVER,CT1416,NEW,COOL GREY PC 148.41 2200 3265021200001799 BACK COVER,5512/5438QS,HIPS MIDDLE GREY PC 213.77 1500 3206551200004991 BACK COVER,CT-1500,COOL GRAY PC 123.85 2550 3158181200001796 BACK COVER,5501/2/FU21,HIPS BLACK PC 231.2 1350 3121201200001821 BACK COVER,HR29/HY29/29X50,HIPS M GREY PC 385.54 792 305342

66


1200008816 BACK COVER,3653QSP,SANSUI BLACK PC 132.98 2200 2925561200004990 BACK COVER15TFT,CT1500/15F10TEV,HIPS MGY PC 101.66 2850 2897311200006125 BACK COVER,14"CON 12,NEW BACK,HIPS L GY PC 126.9 2200 2791801200012963 BACK COVER,HY22F08,HIPS BLACK PC 212.69 1300 2764971200011319 BACK COVER,HY25F01,COOL GREY PC 300.86 825 2482101200001788 BACK COVER,21X50/HR2000/HY22,HIPS M GREY PC 276.56 880.9 243614

1200001789 BACK COVER,3610R/3643QS,HIPS BLACK PC 107.79 2200 237138

1200001370 BACK COVER,FIRST20,COOL GREY PC 194.94 1200 233928

1200000655 BACK COVER,1403/14BS,SUP 14,HIPS,L GREY PC 119.18 1899 226342

1200011323 BACK COVER,HY25F01,HIPS MIDDLE GREY PC 271.24 825 223773

1200001371 BACK COVER,FIRST20,HIPS LIGHT GREY PC 178.38 1200 2140568408689

BUFFER 1300001227 BUFFER,THERMOCOLE,SET,B2B21/22NP/22SL PC 68.17 6425 4379921300000740 BUFFER,THERMOCOLE,SET,5438QS PC 57.94 2927 1696001300001414 BUFFER,THERMOCOLE,SET,CT-1500 PC 35.94 3494 1255671300001176 BUFFER,THERMOCOLE,SET,5143QSR PC 88.95 1300 1156351300001224 BUFFER,THERMOCOLE,SET,HY22F01,NEWBACK PC 69.4 1600 111040

1300000755 BUFFER,THERMOCOLE,SET,FIRST20/CP20F PC 40.79 2564 104604

1300000742 BUFFER,THERMOCOLE,SET,5502QS PC 67.91 1350 91679

1300000735 BUFFER,THERMOCOLE,SET,3643QS PC 39.6 2200 871201243237

PACKING BOX

1300001168 BOX,PACKING,5PLY,CTV22NP,POC1D PC 108.11 2600 281086

1300002493BOX,PACKING,5PLY,BROWN,PURE MONO,5453QSP PC 105.32 2295 241749

1300002762 BOX,PACKING,5PLY,3653QSPP,PURE MONO PC 59.65 4010 239211

1300002932 BOX PACKING,5PLY,HY22F07 PC 107.1 2178 233267

1300003726 BOX PACKING,5PLY,FIRST20DP-P,NEW GRAPHIC PC 69.93 3263 228175

1300002400 BOX,PACKING,5PLY,IS15,INTER. SERIES PC 50.85 4486 228113

1300003268 BOX PACKING,5PLY,HY22F08,POC PC 107.08 1668 178641

1300001354 BOX,PACKING,5PLY,HY21C01 PC 106.88 1500 160320

1300002401 BOX,PACKING,5PLY,IS22,INTER. SERIES PC 105.41 1492 157252

1300000632 BOX,PACKING,5PLY,5502QST PC 108.22 1350 146097

1300003732BOX PACKING,5PLY,SY21SUPEREYEP,NEW GRAPH PC 101.35 1375 139352

2233262SPEAKER

1100001799 SPEAKER,55X153MM,8E,20W PC 35.86 14140 5070601100001804 SPEAKER,T,60MM,RND,6E,15W,FL LENGTH LESS PC 20.43 19540 3992021100001801 SPEAKER,57X127MM,8E,20W,120Hz PC 30.37 8660 2629931100004296 SPEAKER,50X120MM,8E,15W PC 27.87 8950 2494371100008303 SPEAKER,76X127MM,16E,5W, MONO PC 26.82 8865 237762

1100001795 SPEAKER,100MM,SQUARE,8E,25W,HARDROCK21 PC 54.73 3600 197028

1100004303 SPEAKER,57X127MM,16E,5W PC 21.46 7400 158804

1100001797 SPEAKER,50X120MM,16E,5W,FIRST20 PC 30.51 4955 151167

67


2163454TUNER

1100004526 TUNER,EWT-5F3T1-E09W-1,FS TYPE,GDC,TEXA PC 63.73 21450 13670091100015795 TUNER,GDC,FS,EWT-5F3T1-F09W-2 PC 65.63 2125 139464

1506472REMOTE

1100003774 REMOTE HANDSET,POC1,H.E,SP1-02,SANSUI PC 44.96 4672 210044

1100014958 REMOTE HANDSET,H-EK2,SHE PC 44.51 4445 197849

1100014882 REMOTE HANDSET,V(EK2)-LE PC 26.66 7400 197284

1100003775 REMOTE HANDSET,POC1,L.E.,SP1-01,SANSUI PC 43.59 3994 174105

1100001694 REMOTE HANDSET,TSB2,HYU-003,HYUNDAI PC 45.13 2497 112675

1100003776 REMOTE HANDSET,VP1-01, POC1 VIDEOCON PC 37.69 2966 1118071003764

SMPS 1100004241 SMPS,FERRITE CORED,TM0065-0L PC 34.08 13125 447300

1100004238 SMPS,FERRITE CORED,13.5V,TM0148-0L,MO PC 30.18 7651 230916

1100019126 TRANSISTOR,2SC4458,SMPS,PREFORMED PC 17.81 8533 151971

1100004237 SMPS,FERRITE BEAD,18.5V,TSB2,TXXX0080 PC 29.89 3131 93596923782

FBT 1100011384 FBT,20",TF-107-2B,WTH BLEEDR RES,KNOT PC 75.17 10250 770493

1100003298 FBT,FERRITE CORED14",TF-0126-OU,KNOTTING PC 75.63 8913 674101

1100003301 FBT,FERRITE CORED,21"TSB2,BSC24-01N4013E PC 76.71 4799 3681171812711

68


Production plan:

69


For September,06

CT-14MN 700

BRANCHES KAIL3653QSPP 30005153QSP 800IS 15 450015X-50 20022NP 3500IS 22 14005502QST 90021X-50WT 2005505QS 40021X-50 500IS 29G 40029X-50 2007642G 150TOTAL VIDEOCON 16150SY -14- SUPER EYE 1850SY - 21- SUPER EYE 400FIRST 14 DP 350FIRST 20 DP 600HR-15 400K2K-15 800B2B-15 450S2S-15 400FURATTO 21 EYE 100HARD ROCK 21 EYE 350B2B-21 700S2S-21 450HARDROCK 2000 500HARDROCK-2KWT 250K2K-21 1200SLIM EX 214 100PJ-29-M 100PJ-29-M - WT 150HARD ROCK 29 150HARD ROCK 29 WT 200SLIMEX-291 50B2B-29 +DVD 510 200GRAND HYUNDAI 9750

70


CT1416 300CT15NS 200CT1500 100CT20MN 300CT22NS 400CT2202 300CT2205 300CT22WF 250CT2902 100CT2929 100TOTAL AKAI 305015F03 120015F04 190021C01 100022F01T 40022FW01T 45022F08 200022F03 15022F06 25022F07 280029F04G 45029FW01G 250TOTAL SANSUI 10850

Rejection percentages of Picture Tube:

71


REFERENCES:

72


Bibliography:

Working capital management-V.K Bhalla

Production and operations management-manufacturing and services-Chase, Richard B, Nicolas, J Aquilano and F Robert Jacobs

Supply Chain Management-Sunil Chopra

Principles of Inventory and Material Management-Teresine, Richard J.

Websites:

www.effectiveinventory.com

www.inventoryops.com

www.inventoryanalytics.com

www.inventorymanagement.com

www.themanager.org

www.apics.com

73

http://www.apics.com/

http://www.themanager.org/

http://www.inventorymanagement.com/

http://www.inventoryanalytics.com/

http://www.inventoryops.com/

http://www.effectiveinventory.com/

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In Financial Parlance--- MOUMAN BISWAS