Santhosh (Inventory Mgt)1 L&T - Copy

PART - A Chapter – 1 INDUSTRY PROFILE History Like Like every every other other indus industri trial al sector sector in India, India, the Indian Indian Electr Electrica ical/E l/Elec lectro tronic nicss Industry too is slowly emerging from out of its "protective cover". For far too long has Indian Industry remained shackled and consequently inward looking. Over the past fifty years there was no exposure to global players and competition, with the result that the Indust Industry ry grew grew up in a shelte sheltered red enviro environme nment, nt, depen dependen dentt on the Govern Governmen mentt for everything, from licenses to protection to tariffs. Each one of these interventions was aimed at securing protection for oneself and ensuring growth of one’s own organization at the cost of industry and the nation at large. Lack of global competition encouraged a "cost plus" approach, where every conceivable cost increase was passed on to the customer. There was thus no motivation to reduce costs. With de-licensi de-licensing, ng, decontrol decontrol and deregulati deregulation, on, Indian Indian Industry Industry has suddenly suddenly been exposed to global competition. Since last decade, India has witnessed what global players have achieved and what they are capable of achieving.

Segments of Electrical and Electronics Industry Industry The global electrical and electronics industry centers around various adjunct sectors. Few of them are Electronic Components, Computer & Office Equipments, Telecommunications, Telecommunications, Consumer Electronics as well as Industrial Electronics.

Electronic Components Industry This particular industry is engaged in designing, manufacturing, marketing, supporting, selling and distributing of broad range of electronic components such as bolts, clamps,

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KARAVALI INSTITUTE OF TECHNOLOGY

fasteners, lighting, semi conductors, integrated circuits, microprocessors, cables and wires wires,, switch switches, es, sensor sensors, s, keyboa keyboards rds,, socket sockets, s, sonar sonar device devices, s, test test and inspec inspectio tion n equipment etc. Worldwide market leaders electronic components are United States of America, European, Asian countries like Japan, China, India, Taiwan, and Hong Kong. Indian electrical industry has grown because of government's thrust on it and also due to overall economic growth. It has also reached a stage where the industry has demons demonstra trate ted d its capabi capabilit lities ies.. The indust industry ry has seen seen a growth growth of 20% and should should continue at the same level for the next few years. An electr electric ic meter meter or energy energy meter is a devic devicee that that measu measures res the amount amount of electrical energy consumed by a residence, residence, business, business, or an electrically-powered device. Electric meters are typically calibrated in billing units, the most common one being the kilowatt hour. Periodic readings of electric meters establishes billing cycles and energy used during a cycle. Factors Governing the Growth of this Industry. Every industry thrives on some supporting factors. In this connection, there are few factors governing the growth of electrical and electronics industry: •

Research & development plays an important role to the increased productivity and higher-value added electrical and electronics products.

•

Foreign investments accelerates growth in production and export as well. To expand their business, foreign companies have done huge investment which lead to establishing production units in developing countries.

•

Global industries like Medical, Telecommunications, Industrial & Automotive industries have been cordially supported by electrical & electronics industry.

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fasteners, lighting, semi conductors, integrated circuits, microprocessors, cables and wires wires,, switch switches, es, sensor sensors, s, keyboa keyboards rds,, socket sockets, s, sonar sonar device devices, s, test test and inspec inspectio tion n equipment etc. Worldwide market leaders electronic components are United States of America, European, Asian countries like Japan, China, India, Taiwan, and Hong Kong. Indian electrical industry has grown because of government's thrust on it and also due to overall economic growth. It has also reached a stage where the industry has demons demonstra trate ted d its capabi capabilit lities ies.. The indust industry ry has seen seen a growth growth of 20% and should should continue at the same level for the next few years. An electr electric ic meter meter or energy energy meter is a devic devicee that that measu measures res the amount amount of electrical energy consumed by a residence, residence, business, business, or an electrically-powered device. Electric meters are typically calibrated in billing units, the most common one being the kilowatt hour. Periodic readings of electric meters establishes billing cycles and energy used during a cycle. Factors Governing the Growth of this Industry. Every industry thrives on some supporting factors. In this connection, there are few factors governing the growth of electrical and electronics industry: •

Research & development plays an important role to the increased productivity and higher-value added electrical and electronics products.

•

Foreign investments accelerates growth in production and export as well. To expand their business, foreign companies have done huge investment which lead to establishing production units in developing countries.

•

Global industries like Medical, Telecommunications, Industrial & Automotive industries have been cordially supported by electrical & electronics industry.

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•

Increase in income changed living standards of the common mass. As a result, it increased the demand of electronics especially consumer electronics products globally.

•

Electric & Electrical industry is highly fragmented which comprises of many small and medium size enterprises resulting into a huge industry.

•

Asia Pacific region is emerging as the most spinning place for the consumer electronics industry, as the markets remain still encroached.

•

Innovation has played importance in this industry. It led to a consistent demand for newer and faster products and applications The global medical industry is one of the world's fastest growing industries,

absorbing over 10% of gross domestic product of most developed nations. It constitutes of broad services offered by various hospitals, physicians, nursing homes, diagnostic laboratori laboratories, es, pharmacies pharmacies and ably supported supported by drugs, drugs, pharmaceu pharmaceutical ticals, s, chemical chemicals, s, medical equipment, manufacturers and suppliers.

The medical and health care industry provides enormous employment opportunities to choose from. Apart from using the services of medical professionals, this industry also utilizes the expert services of public policy workers, medical writers, clinical research lab worker workers, s, IT profes professio siona nals, ls, sales/ sales/mar market keting ing profes professio sional nalss and health health insura insuranc ncee providers.

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Chapter – 2 COMPANY PROFILE LARSEN & TOUBRO LIMITED

HISTORY

The evolution of L&T into the country’s largest engineering and construction organizations is among the more remarkable success stories in Indian industry. L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Hennin Henning g HolckHolck-Lar Larsen sen and Soren Soren Kristi Kristian an Toubro Toubro.. Both Both of them them were were strong strongly ly commit committed ted to develo developin ping g India' India'ss engine engineeri ering ng capabi capabilit lities ies to meet meet the demand demandss of industry.

Henning Holck-Larsen (4.7.1907 - 27.7.2003)

Soren Kristian Toubro (27.02.1906 - 4.3.1982)

Beginning with the import of machinery from Europe, L&T rapidly took on engineeri engineering ng and constructi construction on assignmen assignments ts of increasin increasing g sophistic sophistication ation.. Today, Today, the company sets global engineering benchmarks in terms of scale, complexity and quality.

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Larsen & Toubro Limited is the biggest legacy of two Danish Engineers, who built a world-class organization that is professionally managed and a leader in India's engineering and construction industry. It was the business of cement that brought the young Mr.Henning Holck-Larsen and Mr.S.K. Toubro into India. They arrived on Indian shores as representatives of the Danish engineering firm F L Smidth & Co in connection with the merger of cement companies that later grouped into the Associated Cement Companies.

By 1964, L&T had widened its capabilities to include some of the best technologies in the world. In the decade that followed, the company grew rapidly, and by 1973 had become one of the Top-25 Indian companies. In 1976, Holck-Larsen was awarded the Magsaysay Award for International Understanding in recognition of his contribution to India's industrial development. He retired as Chairman in 1978.

In the decades that

followed, the company grew into an engineering major under the guidance of leaders like N. M. Desai, U. V. Rao, S. D. Kulkarni and A. M. Naik. Today, L&T is one of India's biggest and best known industrial organisations with a reputation for technological excellence, high quality of products and services, and strong customer orientation. It is also taking steps to grow its international presence.

L&T has an international presence, with a global spread of offices. A thrust on international business over the last few years has seen overseas earnings growing to 18 per cent of total revenue. With factories and offices located around the country, further supplemented by a wide marketing and distribution network, L&T’s image and equity extends to virtually every district of India.

L&T believes that progress must be achieved in harmony with the environment. A commitment to community welfare and environmental protection are an integral part of the corporate vision.

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A) BACKGROUNDS AND INCEPTION OF THE COMPANY Larsen and toubro Limited is the magic power of two Danish Engineers, whose vision and foresight brought about the revolutionary professionally managed and a pioneer in India’s engineering and construction industry.

Larsen & Toubro is a USD 8.5 billion technology, engineering and construction group, with global operations. It is one of the largest and most respected companies in India’s private sector. A strong, customer-focused approach and the constant quest for top-class quality have enabled L&T to attain and sustain leadership in its major lines of business over seven decades.

Milestone

1938: Hemming Holck Larsen and Soren K. toubro set up partnership in a small office in down town Mumbai. They marketed Danish Dairy equipments. 1939: When World War II broke out the Hedging Company genius for innovation came to the fore. It began to make the products it used to import. 1945: L & T was appointed dealers of caterpillar the American earth moving machinery giants. 1946: The firm became a limited company and soon a nation wide network of offices was set up.

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1966: L&T steadily climbed the list of 25 companies during 1973 to 72 companies. 1986: The Company commissioned a new factory in Hebbal industrial estate near Mysore in Karnataka for manufacturing of computer peripherals such dot matrix Printer and floppy disc drive. 1989: A new project was commissioned at Mysore in Karnataka for the manufacture of medical electronics products. 2000: L & T announced a strategic partnership with SAP India. 2009: L&T’s Joint Venture company (L&T Oman) has secured US $ 20 million (INR 96

crore) order from Oman Electricity & Transmission Company (OETC) for construction of one 132/33 kV GIS Substation at Nakhal Area, Oman.

B) NATURE OF BUSINESS Electrical and Electronics Division (EBG) is one of the divisions of Larsen & Toubro Limited at Mysore. This division is engaged in the manufacturing of switchgear products, metering and protection systems and medical equipments. L&T follows best manufacturing practice and meet international regulatory and safety requirements. Some of the good manufacturing practice being followed is six sigma tools, lean manufacturing and value engineering. L&T promote sustainability development within the organisation and the community through good ethical business practice.

Electrical & Electronics Division (EBG) is one of the core businesses of Larsen &

Toubro Limited (L&T) - India’s largest engineering and construction conglomerate. The division has operations at different locations in India (two in Mumbai and one each in Ahmednagar, Mysore and Coimbatore) and one unit for manufacturing operations in China. Another manufacturing facility in Saudi Arabia.

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C) VISION, MISSION AND QUALITY POLICY Vision L & T shall be a professionally managed Indian multinational, committed to total customer’s satisfaction and enhancing shareholders value. L & T ites shall be an innovative entrepreneurial and empowered team constantly creating value and attaining global benchmarks. L & T ites foster a culture of caring trust and continuous learning while meeting expectations of employee’s state holders and society.

Mission Mission statement of L & T is as follows “We shall be a world class company dedicated to excellence and professionalism customers delight through total quality and service shall be our guiding force. We shall foster a spirit of entrepreneurial leadership and be a vibrant learning organisation. L & T ites shall be an inspired team empowered by a culture of trust and caring which serves all stakeholders. We shall be committed to community service and environmental protection”.

Quality Policy 1 Deliver products and service meeting or exceeding customer requirements and expectation while improving value of stakeholders. Retain leadership position in domestic market and increase our global L&T medical equipment with a turnover of Rs. 150 crores is deemed as the giant in the domestic market posing a serious threat to the MNC’s, it command market share ranging from 25% to 35% in diagnostic ultrasound, patient monitoring and surgical diathermy product range.

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D) Products / Services Profile

EBG has a comprehensive quality, environment and safety management system. The quality management system for design & development, production, sales, marketing and servicing has received ISO 9001:2000 certification from BVQI. In addition, its manufacturing

facilities have been certified

for

conformity to ISO

14001

(Environmental Management System) and OHSAS 18001 (Occupational Health and Safety Management System) by BVQI. The division has implemented Enterprise Resource Planning (ERP) solution of SAP AG, Germany and it went live at 35 locations across the country simultaneously in the ‘Big Bang’ mode in 1999.

Switchgear Products: Larsen & Toubro Limited is among the major manufacturers of low voltage switchgear in the World, with the scale, sophistication and range to meet global benchmarks. In addition to its leadership position in the Indian market established over a decade, L&T has a growing presence in international market.

Electrical & Electronics: L&T is a major international manufacturer of a wide range of electrical and electronic products and systems. In the electrical segment, the Company is India’s largest manufacturer of low tension switchgear, and is rapidly establishing itself in international markets. Its products are widely sold in markets in Europe and Australia.

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L&T also manufactures custom-engineered switchboards for industrial sectors like power, refineries, petrochemical, cement, etc. In the electronic segment, L&T offers a wide range of meters and provides complete control and automation systems for diverse industries. Medical equipment and systems manufactured by L&T include advanced ultrasound scanners and patient monitoring systems.

Metering Solutions & Relays L&T is India's leading manufacturer of high quality electronic energy meters and protection relays. It is the market leader in electronic programmable Trivector Meters that are critical for all industrial and power utilities. From the industrial segment, the metering solutions extend to the domestic energy metering, with the availability of static Single Phase and Three Phase energy meters. L&T's manufacturing facility in Mysore has high class testing facilities with NABL accreditation. L&T meters are high on quality, value for money products that meet the needs of different customers like electrical utilities, industries and commercial establishments including domestic consumers. These meters work in extreme climates. In the international market, L&T meters have been exported to various countries across South East Asia, Middle East and Africa. L&T is now making a foray into the European market. L&T offers total solutions for protection in all the three segments of power systems generation, transmission and distribution. Designed and developed by in-house R&D, the range includes electronic trivector meters (TVM), single and three-phase energy meters, ABT meters intelligent panel meters, demand controllers, smart card prepaid meters & GSM Modem.

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Meters

Relays

Medical Equipment & Systems L&T's medical equipment and systems, better known as 'L&T Medical', pioneered the indigenous manufacture of medical equipment in India in 1987. Its range of product include patient monitors, ECG machines, syringe pumps, anesthesia delivery systems and ventilators, defibrillators and cardiac resuscitation systems, ultrasound and colour Doppler’s, x-ray and C-Arm image intensifiers, hospital turnkey projects, telemedicine solutions and specialty ambulances. L&T Medical's products have various certifications/approvals, including IEC 60601-1, CE (G MED, France), CMDCAS (Underwriter Laboratories) for export to Canada and SFDA for export to China. It has secured USA FDA for some of its products. The product designs incorporate embedded systems software from L&T's CMMI Level 5 certified embedded systems group.

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MICROPROCESSOR BASED ENCORE

X – RAY & C RAM C VISSION

VISSION 300/ 500

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ECG MACHINE VELA

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Petroleum Dispensers & Systems L&T commenced manufacturing petroleum-dispensing pumps in the early sixties. Since then, it has a series of firsts to its credit. L&T designed, developed and launched India’s first electronic dispenser in 1984. To enhance the aesthetic appeal of the dispensing unit as well as the fuel pump outlets, it introduced the unique ‘Z-line’ dispenser series in 1988 and later in 1996, launched the pre-set dispensers, manufactured for the first time in the country. L&T launched the oil pre-mix dispensers in 1998 and a year later, introduced the multi product dispensers. Its yet another first in the country was the introduction of QUAD dispensers and communication and printers in dispensers. L&T continues to develop world-class products and has recently launched SPRINT series of dispensing pumps with elegant appearance and in-built communication features like printer, card reader, touch screen as well as electronic calibration and hydraulics with better air separator for more accuracy

Information Technology: Larsen & Toubro InfoTech Limited, a 100 per cent subsidiary of L&T, offers comprehensive,

end-to-end

software

solutions

and

services

with

a

focus

on Manufacturing, BFSI and Communications & Embedded Systems. It provides a cost cutting partnership in the realm of offshore outsourcing, application integration and package implementation. Leveraging the heritage and domain expertise of the parent company, its services encompass a broad technology spectrum, catering to leading international companies across the globe. It leverages the L&T parentage to also provide services in the embedded intelligence and e-Engineering space.

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E) AREA OF OPERATION – GLOBAL / NATIONAL / REGIONAL

Operating Divisions: Engineering & Construction Projects (E&C) Heavy Engineering (HED) Engineering Construction & Contracts (ECC) Machinery & Industrial Products (MIPD) Information Technology & Engineering Services Electrical & Electronics (EBG) SUBSIDIARIES AND ASSOCIATE COMPANIES . L&T InfoTech L&T InfoTech focuses on information technology and software services. Its clients include industry leaders like Marsh & McLennan, Standard Life, Chevron, Free scale, Hitachi, Sanyo , Lafarge , ABSA , Citi-Group, Barclays , e-CORPUS, Marathon and Qualcomm among others. It offers services and solutions for the following industries: banking and financial services, insurance, energy and petrochemicals, manufacturing, and engineering services.

L&T EmSyS EmSyS works in the domains of embedded systems and software. It offers services related to hardware and software / firmware development in diverse verticals. EmSyS Quality Management System has been benchmarked at CMMI - DEV + IPPD, Ver 1.2, Maturity Level 5. It offers the services in following industries : automotive electronics, consumer electronics, control automation, industrial systems, medical electronics, avionics and railway signaling.

L&T Finance Limited L&T Finance is focused on financial services.

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Larsen & Toubro Infrastructure Finance Larsen and Toubro Infrastructure Finance Company Limited was set up as a 100% subsidiary of L&T. It commenced its business in January 2007 upon obtaining Non banking financial company (NBFC) license from the Reserve Bank of India (RBI). As of March 31, 2008, L&T Infrastructure Finance has approved financing of more than a billion USD to select projects in the infrastructure sector.

Larsen & Toubro e-Engineering Solutions A subsidiary focusing on providing engineering solutions using PLM technology. It provides engineering services. Operates from off-shore engineering centers at Vadodara, Chennai and Bangalore with onsite teams to cater to engineering requirements of global clients, many of them Fortune 500 companies across the globe.

Larsen & Toubro Valves Business Group L&T’s Valves Business Group markets valves manufactured by joint ventures, Audco India Limited, India and Larsen & Toubro (Jiangsu) Valve Company Limited, China, as well as allied products from major international manufacturers. L&T sells value-added flow control solutions to oil & gas, refining, petrochemical, chemical and power industries. L&T is a leading global supplier of industrial valves and customised solutions for major Refinery, LNG, GTL, Petrochemical and Power projects. L&T Valves Business Group has offices in the USA, India and China, and strategic alliances with leading integrated valve distributors and agents in the major markets.

Toubro Qatar LLC

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Toubro Qatar LLC is a JV between L&T India (49%) and AL Jazeera International Trading WLL (51%), one of the leading company in Qatar. LTQ was set up in 2004 at Qatar to take advantage of opportunities in the construction industry there. The Company offers turnkey solutions in specialized fields of buildings & factories, roads, bridges, airport, transmission lines, industrial electrification, petroleum & petrochemical projects, fertilizer plants, pipelines, water, sewerage and drainage system.

International Seaports Pvt. Limited International Seaports Pvt. Limited is incorporated by L&T in Singapore with Precious Shipping Public Company Limited (Bangkok) and SSA Asia Inc. (USA). It provides an integrated set of services with committed involvement of design, develop, build and operate seaport terminals in South Asia and South East Asia. It has formed a wholly owned subsidiary in India, International Seaports (India) Pvt. Ltd.

Voith Paper Technology (India) Limited Voith Paper Technology (India) Limited has been set up to manufacture equipment for and provide consultancy services to the paper and pulp industry.

L&T - HCC Jharkhand Road Project JV L&T - HCC Jharkhand Road Project JV: This Joint Venture was formed by Larsen & Toubro Limited and Hindustan Construction Co. Ltd. to execute the 80km four lane concrete road with rigid pavement in Jharkhand. L&T is the leader of this JV and holds 60% share while HCC holds 40% shares.

Narmada Infrastructure Construction Enterprise Limited (NICE)

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Narmada Infrastructure Construction Enterprise Limited (NICE) is an SPV formed for design, construction and maintenance of the Second Narmada Bridge at Zadeshwar in Gujarat

Second Vivekananda Bridge Tollway Group Second Vivekananda Bridge Tollway Group is an SPV formed with AIDC (Asia Infrastructure Development Corporation) to develop “Second Vivekananda Bridge Tollway Group”.

Bangalore International Airport Limited Bangalore International Airport Limited is a JV company formed for developing an international class airport at Bangalore. Karnataka State Industrial & Investment Development Corporation (KSIIDC), Airports Authority of India (AAI), Unique (Zurich Airport) of Switzerland and Siemens, Germany are the partners.

L&T Infocity Limited L&T Infocity Limited, a joint venture with Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC), is developing the intelligent techno township, HITEC City, in Hyderabad.

Cyber Park Development & Construction Company (CPDCL) Cyber Park Development & Construction Company (CPDCL) is a special purpose vehicle formed with Software Technology Parks of India (STPI) to develop "Cyber Park" - a 4,90,000 sq.ft IT Park in Bangalore.

Vizag Industrial Water Supply Company Limited (VIWSCO) Vizag Industrial Water Supply Company Limited (VIWSCO): The project involves augmentation of water supply to Yeluru Left Bank Canal (YLBC) for which a pipeline

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from river Godavari at Rajahmundhry is made with regular maintenance along with phased rehabilitation of the YLBC. The Govt. of Andhra Pradesh embarked upon this project on privatization route to spur the entire Industrial development of Visakhapatnam.

TECHNOLOGY USED The company has implemented various information technologies like SAP (system application product) and EMSYS (embedded system software). SAP is a technology, with the help of which the work burden of the employees is reduced up to 50%. The competition of the work becomes faster and more accurate. SAP is applied in various departments like excise, financial and costing material management, and production planning quality management and sales and distribution The Company has got its own EMSYS where it develops its own hardware and software for its product and its development. The Company provides different working environment for various factors.

F) OWNERSHIP PATTERN Shareholders are the owners of the company. The L & T group has around share at Rs 2 per share. Number of shares held with public.

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Percentage of Share

Name of the Share Holders

LIC

31.76

L & T employee welfare foundation

26.74

UTI

18.07

Promoter

6.98

General Insurance corporation of India

5.66

J.P Morgon flemming Asset management Europe (S.A)

4.24

New India Assurance Co Ltd

4.48

Oppenhermers fund Co. Ltd

2.1

Board of Directors L & T Board of directors comprises a chairman and managing director, 6 whole time directors and 8 independent external directors. The external directors are respected professionals in the area of business strategy financial law and public policy. The share held by directors is 1525714 and their percentage of paid up capital is 1.10. The share held with director’s relatives is 787. L&T share are listed in both BSE (Bombay stock exchange) and NSE (national stock exchange). The global depository receipts are listed on Luxembourg stock exchange. G) COMPETITORS INFORMATION

The Major competitors of L & T medical equipments are Siemens, GE, and Philips.

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Siemens Siemens is 2 nd oldest company it is becoming a global player today it represents 190 countries all over the world. The company ranges from various equipments to networked hospitals. Siemens medical solution bring together innovative imaging equipments, information technology management Consulting and service to help customers achieve tangible sustainable clinical and financial out comes. Siemens enjoy 40% of market share. As it is the 2 nd oldest company.

Philips Philips globally makes bulk for its medical equipment at Netherlands, Germany, Finland, Isaac1 China and the U.S. the proposed facility in India will act as the hub for the Indian sub continent.

The company claims a global Market Leader for patients monitoring system and the worlds, second largest manufacturer’s medical diagnostic equipment Philips claims to be the world’s second largest suppliers of PACSGE.

GE GE health care is a 15 $ billion units of general electric company worldwide. GE health’s care employees more than 43000 people committed to serving health care.

GE health care provides transformational medical technologies and service that is shaping a new age of patient care, through broad range of products, service and expertise in medical imaging and information technologies, medical diagnostics patient monitoring systems. The company posse’s high quality products with new technologies implemented which makes the company to stand in a unique position.

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H) INFRASTRUCTURAL FACILITY

Medical Service For emergencies the ambulance room are provided to employees who have the entire medicine medical and a full time nurse in attendance.

Canteen Facilities The company has a canteen functioning, from where the employees could have break fast, lunch and dinner. Apart from these they can get coffee/ tea at a reasonable price.

Sports Facility The process of developing a sports complex, currently the company has a good cricket ground, two badminton courts and four TT tables. Competitions are kept on time-to-time basis. Well-equipped Gymnasium with state of the art equipments where in people can work out and be relaxed.

Library The company provides a lending library stocked with essential management and other books. To avail the facility the employee has to become the member by filling the membership form.

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Communication The communication channel that is in place is via electronic mail and Internet facility. The in-house mails can be sent through the pigeon holes kept at various points with in the buildings. E-mail id’s will be provided to employees based on the profile and requirements. The company has Novell GroupWise as their e-mail network.

Transportation Transportation is provided to and from major points throughout the city for both day and night shifts. The details of the stop are provided to employees in the intranet. The registration is done once the pay sheet number is allotted.

Conference Hall Company provides three conference halls in the campus. The hall is equipped with air conditioner with the timer fixed to it.

I) ACHIEVEMENT / AWARD

 L&T is The Best Company to Work for in the Manufacturing Sector – Business Today 2009-10  L&T Wins Business Standard ‘Company of the Year’ Award. 2009-10

 L&T-Chiyoda bags ICWAI Award for Excellence in Cost Management  L&T Wins Golden Peacock Award for Corporate Social Responsibility  L&T bags Achievement Award from FinanceAsia  SGCCI Golden Jubilee Memorial Trust Award - for outstanding performance in Export of Engineering Goods for 2004-05. This Award highlights L&T's export of high-tech, custom-built equipment worldwide.  Greentech Safety Awards (2005) - by the New Delhi-based non-profit organisation, Greentech Foundation, for the effort in industrial safety and environmental management.

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 Ethics is Good Business award - from the New Delhi based PHD Chamber of Commerce & Industry (PHDCCI).  Businessworld's survey on "India's Most Respected Companies", ranked L&T first in infrastructure sector.  L&T was ranked first in "India's Best Managed Companies" in a 2008 survey published by Business Today, India's leading business periodical.

 Golden Peacock Award in the 'Innovative Product/Service category'  'Ethics is Good Business' award  44th Annual Awards Competition organized by the Association of Business Communicators of India (ABCI)  India Manufacturing Excellence Awards Excellence Award for Best Corporate Man of the  Lifetime Achievement Customer Decade Requiremen t  Mr. A. M. Naik receives Padma Bhushan from the President of India  CII honours L&T with Corporate Wellness Award  L&T wins D&B-Rolta Top Indian Company Award  L&T bags FICCI Award for Outstanding Corporate Vision Quality Design

New product Design team

Assuran ce

WORK-FLOW MODEL

The flow of the work in the organization is customer-to-customer approach. The Productio Design

Fig. 2.1 shows workPrototype flow model sample

Purchas e

n

Manufacturing cycle

Marketing

Demand

Shortage List

Demand placing

Productio n

Quality Control

Assembly

Final Assembly

Procure ment

Subcontra cting

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Issue Stores

Finished KARAVALI INSTITUTE OF TECHNOLOGY stores Customers

K) Future growth and prospects Unlike several of its peers, L&T is continuously developing new skill sets / entering new segments and geographies. We believe that its entry into new areas like power equipment, nuclear power plants, defense, shipbuilding, power development projects, and forgings (thermal and nuclear), increased presence in the Middle East, and its ability to take new PPP projects (due to strong balance sheet) will help L&T to ensure long-term sustainability of order flow. Further, some of these business segments could contribute meaningfully to consolidated revenues and profitability, going forward. Certain business segments like nuclear power plants, shipbuilding and defence have witnessed strong support and initial action from the government. The first few orders could be received over the next 12-18 months. In the nuclear segment, L&T has tied up with global nuclear equipment suppliers to cater to India’s planned addition of 16GW of nuclear power by 2020. This will entail investments of Rs1,600b over the next 8-10 years and the ordering of these projects is expected from FY11. L&T has presence in financial services (L&T Finance/Infra Finance) and IT/ITES (L&T Infotech). In the last 2-3 years, these businesses have attained critical scale. With L&T’s plan to grow these businesses plus manufacturing to 40% of group revenues by FY14, we see substantial organic and inorganic scaling up of these two verticals in 2-3 years. L&T has also forayed into thermal and hydro power project development, and currently has a portfolio of 1.32GW of thermal power and 728MW of hydro power under development. The management has through various media articles stated its intent of setting up ~5GW of power capacity as developer by 2015. Mr Ravi Uppal had in the recent past been appointed as Managing Director and Chief Executive Officer of L&T

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Power (Mr Uppal was previously the head of Global Markets and a Member of the Group Executive Committee of the ABB Group).

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Chapter – 3 Mckensy’s 7 Frame work McKinsey & Co's 7S framework provides a useful framework for analysing the strand weaknesses an organization. The McKinsey Consulting Firm identified strategy as only one of seven elements exhibited by the best managed companies. The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example..

 Improve the performance of a company.  Examine the likely effects of future changes within a company.  Align departments and processes during a merger or acquisition. Determine how best to implement a proposed strategy.

The Seven Elements

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The McKinsey 7S model involves seven interdependent factors which are categorized as either “hard” or “soft” elements: Hard Elements Strategy Structure

Soft Elements Shared Values Skills

Systems

Style Staff

“Hard” elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. “Soft” elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. Let’s look at each of the elements specifically: •

Strategy: the plan devised to maintain and build competitive advantage over the

competition. •

Structure: the way the organization is structured and who reports to whom.

•

Systems: the daily activities and procedures that staff members engage in to get

the job done. •

Shared Values: called “super ordinate goals” when the model was first

developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. •

Style: the style of leadership adopted.

•

Staff: the employees and their general capabilities.

•

Skills: the actual skills and competencies of the employees working for the

company.

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Chapter – 4 SWOT Analysis SWOT Analysis refers to the analyzing the strength, weakness, opportunity and threat of the organiasation (Company)

SWOT is a compound of two factors namely external factors and internal factors. Strength and weakness are the internal factor which can be controlled by the technical and personnel departments. Opportunity and threat are the external factors, which cannot be controlled by the company. External factors may include political factors, Socio-Cultural factors, Technical factors, demography, Environmental factors etc.

Larsen & Toubro - SWOT Analysis company profile is the essential source for top-level company data and information. Larsen & Toubro - SWOT Analysis examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy.

STRENGTHS 

Leading Market Position



Integrated Operations



End Use Markets



Strong Order Book Position



Product development capabilities



Manufacturing Excellence



Customer knowledge Leading to user friendly products



Well-established marketing department

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

Adherence to extremely high level of quality control

WEAKNESS 

Increasing Expenses



Increase in attrition rate from past few years.



Very less penetration to the other medical manufacturing segments.



Low existence of market segment.



Poor transportation facility for the life saving equipments.

OPPORTUNITIES 

Strategic Alliances



Strengthening International Presence



Rising Demand for Hydrocarbon Projects



Expanding new manufacturing facilities



Increasing exports in New technological area



Focus on strange thinning competitors required in upstream business.



Enhancing capacities through new design engineering centers



Continuing focus on Infrastructure sector in investment.

THREATS 

Revenue Concentration



Intense Competition



Challenges To Order Execution



Government regulation.



Huge cost incurred in importing raw materials.



Delay in supply of raw materials.



Production depends on customer requirements and demand condition. 31


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Chapter – 5 Analysis of Financial Statement Annual results in details (Rupees in Crores) Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Other income 739.78 587.87 462.29 545.71 Stock adjustment -105.11 -746.17 -56.45 61.81 Raw material 7,452.02 6,516.82 4,460.27 3,636.95 Power and fuel Employee expenses 1,998.02 1,535.44 1,258.21 890.03 Excise 398.47 332.78 321.75 230.76 Admin and selling expenses 1,839.50 1,374.17 1,495.85 1,215.06 Research and development expenses Expenses capitalized Other expenses 18,885.10 13,359.81 8,674.42 7,891.57 Provisions made Depreciation 305.99 211.60 170.01 114.49 Taxation 1,231.21 982.05 601.87 371.26 Net profit / loss 3,481.66 2,173.42 1,403.02 1,012.14 Extra ordinary item 772.46 87.23 69.75 Prior year adjustments Equity capital 117.14 58.47 56.65 27.48 Equity dividend rate Agg.of non-prom. shares (Lacs) 5684.96 2802.45 2.76 1373.86 Agg.of non promoter Holding (%) 97.06 95.87 97.57 100.00 OPM (%) 11.24 11.17 9.76 6.43 GPM (%) 12.11 12.72 11.84 9.26 NPM (%) 9.93 8.43 7.64 6.56

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Annual results in brief

Sales Operating profit Interest Gross profit EPS (Rs)

Mar ' 09 34,324.84 3,856.84 350.22 4,246.40 59.44

Mar ' 08 25,187.48 2,814.63 122.66 3,279.84 74.34

Mar ' 07 17,900.59 1,746.54 33.93 2,174.90 49.53

Mar ' 06 14,883.68 957.50 75.07 1,428.14 73.66

Ratios Mar ' 09

Mar ' 08

Mar ' 07

Per share ratios

Adjusted EPS (Rs) Reported EPS (Rs) Dividend per share Operating profit per share (Rs) Book value (excl rev res) per share (Rs) Net operating income per share (Rs) Free reserves per share (Rs)

45.05 59.45 10.50 70.72 578.06 205.21

69.13 74.35 17.00 110.81 8.03 853.36 319.09

49.36 49.53 13.00 71.77 202.30 622.91 197.15

Profitability ratios

Operating margin (%) Gross profit margin (%) Net profit margin (%)

12.23 11.39 10.06

12.98 12.19 8.54

11.52 10.61 7.74

0.43 0.52 65.47 6.23

0.27 0.37 72.66 6.09

0.24 0.36 73.42 6.21

1.30 0.96 6.01

1.18 0.86 6.00

1.26 0.93 6.11

Leverage ratios

Long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio Liquidity ratios

Current ratio Quick ratio Inventory turnover ratio

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Mar ' 09

Mar ' 08

Mar ' 07

Payout ratios

Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio

20.58 18.92 72.84 75.66

26.29 23.96 71.72 74.40

30.04 26.97 69.85 72.95

27.51 0.92 21.70 44.34 0.35 76.77

33.09 1.28 22.67 39.78 0.38 53.71

30.15 1.13 21.36 49.28 0.30 55.44

0.10 20.10 107.50 85.40 4.40 21.00

-13.10 106.50 95.00 5.70 19.30

0.10 29.40 111.70 92.30 6.10 18.80

Component ratios

Material cost component (% earnings) Selling cost Component Exports as percent of total sales Import comp. in raw mat. Consumed Long term assets / total Assets Bonus component in equity capital (%) Working capital

Working Capital to Sales Working Capital Days (days gross sales) Receivables (days gross sales) Creditors (days cost of sales) FG Inventory (days cost of sales) RM Inventory (days consumption) Growth

Total Operating Income EBITDA EBIT Net Profit Total Assets

35.44 27.79 26.49 60.28 45.34

35

41.05 60.79 64.64 55.20 66.22

19.38 69.30 71.95 38.43 27.72


Balance Sheet of Larsen and Toubro ------------------- in Rs. Cr. ------------------Mar '07

Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)

36

Mar '08

Mar '09

56.65 56.65 0.00 0.00 5,683.85 27.93 5,768.43 245.40 1,832.35 2,077.75 7,846.18

58.47 58.47 0.00 0.00 9,470.71 25.90 9,555.08 308.53 3,275.46 3,583.99 13,139.07

117.14 117.14 0.00 0.00 12,317.96 24.59 12,459.69 1,102.38 5,453.65 6,556.03 19,015.72

2,876.30 1,122.83 1,753.47 471.22 3,104.44 3,001.14 5,504.64 993.68 9,499.46 2,449.14 100.75 12,049.35 0.00 8,362.01 1,180.13 9,542.14 2,507.21 9.84 7,846.18 270.22 202.65

4,188.91 1,242.47 2,946.44 699.00 6,922.26 4,305.91 7,365.01 779.86 12,450.78 3,861.10 184.60 16,496.48 0.00 11,892.75 2,035.42 13,928.17 2,568.31 3.06 13,139.07 1,013.51 325.98

5,575.00 1,421.39 4,153.61 1,040.99 8,263.72 5,805.05 10,055.52 693.13 16,553.70 7,198.85 82.16 23,834.71 0.00 15,211.04 3,066.53 18,277.57 5,557.14 0.26 19,015.72 1,371.86 212.32


Profit & Loss account of Larsen and Toubro ------------------- in Rs. Cr. ------------------Mar '07

Mar '08

Mar '09

Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income

17,983.37 338.08 17,645.29 459.80 121.76 18,226.85

25,280.49 334.38 24,946.11 616.69 74 7 46.17 26,308.97

34,249.85 393.31 33,856.54 1,612.58 105.11 35,574.23

Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

5,320.98 308.13 1,258.21 7,451.07 1,222.80 166.15 -3.30 15,724.04

8,256.46 365.25 1,535.44 10,632.83 1,393.80 280.69 -11.42 22,453.05

9,316.38 456.39 1,998.02 15,659.17 1,844.83 569.32 -24.48 29,819.63

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Shares in issue (lakhs) Earning Per Share (Rs)

2,043.01 2,502.81 331.46 2,171.35 160.13 0.00 2,011.22 -5.34 2,005.88 601.87 1,403.02 10,403.06 0.00 368.25 53.34 2,832.71 49.53

3,239.23 3,855.92 501.83 3,354.09 195.94 15.66 3,142.49 12.21 3,154.70 982.05 2,173.42 14,196.59 0.00 495.32 76.26 2,923.27 74.35

4,142.02 5,754.60 770.00 4,984.60 284.83 21.16 4, 4,678.61 -21.09 4,657.52 1,176.19 3,481.66 20,503.25 0.00 614.97 101.83 5,856.88 59.45

Chapter – 6 37


Learning Experience L&T is the largest and most Reputed company in Indian Private sector. L&T with its diversified business has taken accounts ahead of competition in global Market. L&T possesses a good competitive advantage with its high quality technology and a wide spread marketing network. L&T medical manufacturing unit has got nine departments, each department has its own unique and specific work. The various departments are personal department, service department, Quality assurance department, Training and documentation cell, material department, plant engineering department, medical design marketing & FG Stores. The depart departmen mental taliza izatio tion n helps helps to increa increase se the effici efficienc ency y of the employ employee ee as each each employee has expertise in their own work and the flow of work becomes easier and faster. The product procedure passes through each department. This helps to maintain the quality of product and meets the customer needs. The IT service departments develop its own software according to the equipments of the custom customers ers which which reduce reducess the the cost cost burden burden and secur secures es the dup dupli licat cation ion of such such software by the competitors. L&T believe in providing quality produce to the customer, as they are life saving equipments. The quality is entitled as inspection is done at each stage of production. Each material is kept according to the required atmosphere. Example IC chips needs to be kept in A/c most free atmosphere. L&T’s employment policies and system radiate from a single principle-belief in people “People are our Core Strength”. Employees gain a level of

38


freedom that provides security satisfaction and most importantly a sense of professional fulfillment. The fresh engineers are taken as graduate engineer trainees (GETS) for a probation period of 1 year during which they go through rigorous on site training. In addition to specific training program for engineers there are several other training programs across various functional areas such as finance strategy leadership, marketing, along with soft skill program. The stores department keeps the various raw materials in different condition according to the requir requireme ements nts.. The compan company y procur procures es raw materi material al whenev whenever er requir required. ed. The company follows both FIFO and LIFO method for materials to production department. In case the goods are of perishable in nature at that time they follow LIFO method and for other materials they follow FIFO method. Various departments process foreign purchase order. The purchase order is prepared on select selected ed vendor vendor as per approv approved ed vendor vendor.. The mater material ial depart departmen mentt releas release, e, foreig foreign n p pur urch chas asee orde order. r. In case case of amen amendm dmen ent, t, the the same same shal shalll be ente entere red d in the the syst system em maintaining the basis. Product design and development are carried out in 3D environment issuing state of the outt desi ou design gn and and simu simula lati tion on soft softwa ware re prod produc ucts ts are are desi design gned ed keep keepin ing g in mind mind the the challenges that are faced tomorrow. The design team works on 3D design simulation and analysis software to develop flow control products that are optimized and highly reliable.

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PART – B

CHAPTER-1 GENERAL INTRODUCTION The term inventory includes raw materials, work in process finished products, packing materials, spares and other stocks in order to meet an expected demand or distribution in the future. “Inventory are assets of the firms, and as such they represent an investment. Because such investment requires a commitment of funds manager must ensure that the firm maintains inventories at the current level. if they become too large, the firm losses the opportunity to employ those funds more effectively. Similarly, if they are too small, the firm may lose sales. Thus, there is an optimal level of inventories and there is an economic order quantity model for determining the correct level of the inventory.” Inventory is as old man. The primitive man’s inventory consisted of a few tools; as a shep shephe herd rd,, man man had had to tend tend his his floc flocks ks and and herd herds; s; late later, r, he had had his his gran granar arie iess and and warehouses; today with industrialization, his inventories cover a very wide range. As man has progressed and his needs and activities have multiplied, the range of inventory has become larger and more diversified. As of today, inventories include, among other, raw materials, part- finished goods, finished goods and operating supplied. Each of these serves specific purposes. The raw materials inventories are held for later conversion into semi- finished or finished goods. Raw material inventories must exist because generally it is not always economically feasible either to purchase or to schedule the delivery of raw material, as they are needed in the production process. Since manufacturing or processing always takes time, there is need for finished goods inventory. In some industries, material must be processed in batches.

40


In other industries the flow of material may be steady, with the product existing simultaneously in several stages of completion. In still other types of manufacturing it is desirable from economic considerations, to process or schedule material in lots. The nature of the product, the natures of the customer demand and the nature of the manufacturing process determines, to a considerable extent, the need for finished goods inventories. If the customer is willing to wait for the product to be manufactured, there is need for finished goods inventories. Some times, the nature of the product prohibits expensive finished goods inventories. Fresh fruits, vegetables and some other foods have limited storage life, so the extensive inventories of these products are not desirable. If the material must be processed in lots or batches. Finished goods inventories will usually exist. Supplies inventories do not directly go into the product. But they exist to facilitate smooth operation of the manufacturing process. In general, inventory facilitates transit and handling. Materials may be transported thousands of kilometers before they incorporated into an end product. All the time material is in transit, which may be a period several months. During this transit, materials constitute someone’s inventory. Finally, inventories are held to facilitate product display and service to customers, batching in production I order take advantage of longer production runs and provide flexibility in production scheduling.

Purpose of Inventory Management INVENTORY MANAGEMENT must tie together the following objectives, to ensure that there is continuity between functions: 

Company’s Strategic Goals



Sales Forecasting



Sales & Operations Planning



Production & Materials Requirement Planning.

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Inventory Management must be designed to meet the dictates of market place and

support the company’s Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control.

Inventory Management system provides information to efficiently manage the flow of

materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers . Inventory Management does not make decisions or manage operations, they provide the information to managers who make more accurate and timely decisions to manage their operations.

INVENTORY is defined as the blocked Working Capital of an organization in the form of materials. As this is the blocked Working Capital of organization, ideally it should be

42


zero. But we are maintaining Inventory. This Inventory is maintained to take care of fluctuations in demand and lead time. In some cases it is maintained to take care of increasing price tendency of commodities or rebate in bulk buying.

Traditional Supply Chain solutions such as Materials Requirement Planning, Inventory Control, typically focuses on implementing more rapid and efficient systems to reduce the cost of communicating information between and across the Inventory links in the SCM. COM focuses in optimizing the total investment of materials cost and workload for every Inventory item throughout the chain from procurement of raw materials to finished goods Inventory. Optimization means providing a balance of supply to meet the demand at a minimum total cost, Inventory level and workload to meet customers service goal for each items in the link of Inventory Chain.

It is strategic in the sense that top management sets goals. These include deployment strategies (Push versus Pull), control policies, the determination of the optimal levels of order quantities and reorder points and setting safety stock levels. These levels are critical, since they are primary determinants of customer service levels.

Keeping in view all concerns, the latest concept of Vendor Managed Inventory is used to optimize the Inventory. We are entering into Vendor Managed Inventory, Annual Rate Contracts with manufacturers or their authorized dealers, who maintain Inventory on our behalf and supply the items as and when required.

VMI reduces stock-outs and optimize inventory in supply chain. Some features of VMI include: 

Shortening of Supply Chain



Centralized Forecasting



Frequent communication of inventory, stock-outs and planned promotions

43




Trucks are filled in a prioritized order , e.g. items that are expected to stock out have top priority then items that are furthest below targeted stock levels then advance shipments of promotional items

Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed.

The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations.

The basic building blocks for the Inventory Management system and Inventory Control activities are: 

Sales Forecasting or Demand Management



Sales and Operations Planning



Production Planning



Material Requirements Planning



Inventory Reduction

The emphasis on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control.

44


Inventory is usually a distributor’s largest asset. But many distributors aren’t satisfied with the contribution inventory makes towards the overall success of their business:  The wrong quantities of the wrong items are often found on warehouse shelves.

Even though there maybe a lot of surplus inventory and dead stock in their warehouse(s), backorders and customer lost sales are common. The material a distributor has committed to stock isn’t available when customers request it.  Computer inventory records are not accurate. Inventory balance information in the

distributor’s expensive computer system does not accurately reflect what is available for sale in the warehouse.  The return on investment is not satisfactory. The company’s profits, considering its

substantial investment in inventory, is far less than what could be earned if the money were invested elsewhere.

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CONTROLING OF INVENTORIES:-

Inventory control techniques are employed by the inventory control organization within the frame work of one of the basic inventory model, viz., fixed order quantity system or fixed order period system. Inventory control techniques represent the operational aspect of inventory management and help realize the objective of inventory management 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. The techniques most commonly used are the following. Always better control (ABC) classification High, medium and low (HML) classification Vital essential and desirable (VED) classification Scarce, difficult and easy to obtain (SDE) Fast moving, slow moving and non-moving (FSN) Max-minimum system Two bin system Material requirement planning (MRP) Just-in time (JIT) INVENTORY CATALOGUE:-

Also called inventory directly, inventory catalogue is a pre-requirement for the successful operation of inventory control techniques. The inventory of typical production firm comprises 5 to 10 different items. Knowledge of each item and the

46


finished product of which each is a part is essential for employing any technique of inventory control.

Inventory catalogue is prepared after all inventory items have been described, classified and coded. Properly maintained inventory directory pry two important dividends.

An inventory catalogue serves, first as a medium of communication. It enables personal located in many different departments to perform their jobs more effectively. A second benefit produced by an inventory catalogue accrues to the inventory control operation staff. This benefit takes the form of more complete and correct records through the reduction of duplicate records for identical parts. A purchasing department often buys the same part from several different suppliers, under various manufacturer’s and part numbers. Unless control requirements dictate otherwise, identical parts from all suppliers should be consolidated on one inventory record.

ABC ANALYSIS:-

One of the widely used techniques for control of inventories is the ABC (Always Better Control) analysis. The objective of ABC control is to vary the expenses associated with maintaining appropriate control according to potential savings associated with a proper level of such control. Once inventory is classified, we have a base for deciding where we will put our effort. Logically, we except to maintain strong control over the ‘A’, items taking whatever special action needed to maintain availability of these items and hold stocks at the lowest possible levels consistent with meeting demands. At the other end of the scale, we cannot afford the expense of rigid controls, frequent ordering and expediting because of low amount in this area. Thus with the ‘C’ group, we may maintain somewhat higher safety stocks, order more months of supply, expect lower levels of

47


customer service, or all the three. It is for this selective approach, that ABC analysis is often called Selective Inventory Control Method (SIM).

The inspiration behind the ABC analysis has been drawn from vilfredo Pareto, an Italian economist and sociologist who generated some highly debatable concept of economics and sociology. One that is most interesting to a student of inventory management is the concept of ‘Pareto’s laws’. Pareto arrived at the general conclusion that income distribution patterns were basically in the different countries and in different historical periods. Extending Pareto’s principle to inventory, it is always possible and necessary to separate ‘vital few ‘from ‘trivial many’ of the stock items for there effective control. Separating vital few from trivial many is what is precisely done in ABC analysis. Pareto’s principle was brought to the attention of people concerned with inventory management by H. Ford Dickie, who applied Pareto’s law to Inventory and developed the general concept of ABC analysis like so many ideas however it has not been completely understood. The idea of distribution of value for inventory stratification is neither a system nor a technique; it is a fundamental management principle with universal application potential. The following procedure is suggested for developing an ABC analysis:1. List each item carried in inventory by number or some other designation. 2. Determine the annual volume of usage and rupee value of each item.

3. Multiply each items annual volume of usage by its rupee value. 4. Compute each items percentage of the total inventory in terms of annual

usage in rupees. 5. Select the top ten percent of all items, which have the highest rupees

percentages and classify them as ‘A’ items.

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6. Select the next 20 percent of all items with the next highest rupee percentages

and designate those ‘B’ items. 7. The next 70 percent of all items with the lowest rupee percentages are ‘C’

items. HML CLASSIFICATIONS:-

The High, Medium and Low (HML) classification follows the same procedure as is adopted in ABC classification. Only difference is that in HML, the classification unit value is the criterion and not the annual consumption value. The items of inventory should be listed in the descending order of unit value and it is up to the management to fix limits for three categories. The HML analysis is useful for keeping control over consumption at departmental levels for deciding the frequency of physical verification, and for controlling purchases. VED Analysis:-

Vital, essential and desirable (VED) analysis is done mainly for control of spare parts keeping in view the critically to production. Vital spare parts keeping in view the critically to production. Vital spares are spares the stock-out of which even for a short time will stop production for quite some time. The stock-out cost of vital items will stop production for quite sometime. The stock-out cost of vital items is very high. Essential spares are the absence of which cannot be tolerated for more than a few hours a day and the cost of lost production is high. Such spares are essential for the production to continue. The desirable spares are those, which are needed, but their absence for even a week or so will not lead to stoppage of production. Some papers though, negligible in value may be vital for the production to continue and require constant attention. Such spares may Not receive the attention they deserve if they are maintained under ABC analysis method because their consumption value is small.

49


SDE CLASSIFICATION:-

The SDE analysis is based on the availability of items and is very useful in the context of scarcity of supply. In this analysis, ‘S’ refers to scarce items, generally imported and those which are in short supply. ’D’ refers to difficulty items, which are available indigenously but are different items to procure. Items which have to come from distant places or for which reliable suppliers are difficult to cum by fall in to ‘D’ category. ‘E’ refers to items which are easy to acquire and which are available in local markets. The SDE classification based on problems faced in procurement is vital to the lead time analysis and in deciding on purchasing strategies. FSN Analysis:-

FSN stands for Fast moving, slow moving and non moving, here classification is based on the pattern of issues from stores and is useful controlling obsolescence. To carry out FSN analysis, the date of receipt or the as date of issue, whichever is later, is taken to determine the number of months, which have lapsed since the last transaction. The items are usually grouped in period 12 months. FSN analysis is helpful in identifying active items which need to be reviewed regularly and surplus items which have to be examined further. Non-moving items may be examined further and their disposal can be considered. ECONOMIC-ORDER-QUANTITY DECISION MODEL:-

The first major decision in managing goods for sale is deciding how much of a given product to order. The EOQ is a decision model that calculated the optimal quantity of inventory to order under a restrictive set of assumption. The simplest version of this model incorporates only ordering costs and carrying costs into the calculations. It assumes the following…

50


1. The fixed quantity is ordered at reorder point.

2. In deciding the size of the purchase order managers consider the costs of quality only to the extent that these costs affect ordering cost or carrying cost. 3. Demand, ordering costs and carrying costs are known with certainty. The purchase-

order lead time- the time between placing an order and its delivery is also known

with certainty. 4. Purchasing cost per unit are unaffected by the quantity ordered, this assumption

makes purchasing cost irrelevant to determining EOQ, because purchasing costs of all units acquired will be the same regardless of the order size in which the units are ordered. 5. No stock outs occur. One justification for this assumption is that the costs of a stock

out can be prohibitively high. We assume that to avoid these potential costs, manager always maintain adequate inventory so that no stock out cost can occur.

The formula for EOQ model is:-

EOQ = 2AB/C A = Annual consumption B = Relevant ordering costs per purchase order C = Relevant carrying costs of one unit in stock for the time period used MATERIALS REQUIREMENT PLANNING (MRP) is a “push-through” System

that manufactures finished goods for inventory on the basis of demand forecasts. MRP uses. 1. Demand forecasts for the final products. 2.

A bill of materials, components and subassemblies for each final product.

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3. The quantity of materials, components, finished products and product

inventories to pre determine the necessary output at each stage of production. Taking in to account the lead-time required to purchase materials and to manufacture components and finished products, a master production schedule specifies the quantity and timing of each item to be produced. Once scheduled production starts the output of each department is pushed through the production line whether it is needed or not. The result is often an accumulation of inventory as work station that receives work they are not yet ready to process. Inventory management is a key challenge in an MRP system. The management account can play several important roles in meeting this challenge. A key role is maintaining accurate and timely information pertaining to materials, work-in-process and finished goods inventories. The change enabled national to move products from plant to customers in 4 days rather than 45 days, And to reduce distribution costs from 2.6% to 1.9% of revenues. These benefits subsequently led national to outsource all its logistics to federal express, including shipments between its own plants in the United States, Scotland and Malaysia. JUST-IN TIME PURCHASING:-

Just-in-time (JIT) purchasing of materials such that a delivery immediately precedes demand or use. JIT purchasing requires organizations to restructure their relationships with suppliers and place smaller and more frequent purchase orders. JIT purchasing can be implemented in manufacturing sectors of the economy consider JIT purchasing for Hewlett Packers (H P’s) manufacture of Kayak work station production line HP has long term agreements with suppliers who provide the major components for this product line. Each supplier required to deliver components such that HP’s final assembly plans meet their own production schedule and it have minimal inventory of the various components on hand.

52


Fixation of stock levels:In order to know when the purchase requisition should be sent different levels for stock of each item are decided. These stock levels are.

1. Minimum level (safety level) 2. Reorder level 3. Maximum level

Minimum level:It is the level below which stock of an item is never allowed to fall. If the actual stock goes below this point, there is possibility of up setting of production schedules for want materials. This level is determined by taking into account: 

Average rate of consumption.



Head-time i.e. average time required fresh supply of materials.



Re ordering level.

Minimum Stock = Reorder level – Average consumption * Average lead time.

Re-ordering level:When stock in hand reaches this level, it is an indication that replenishment is necessary and proposals for purchase are to be initiated. This level is fixed some where between the maximum and minimum levels. The quantity of material represent by the difference between the re-ordering level and the minimum level will be sufficient to meet the demand of production till such time as the other materializes and supplies are delivered. Re-ordering level = Maximum consumption * Maximum lead time.

Maximum level:53


The maximum level indicates the maximum quantity of an item of material that can hold in stock at any time. This level is fixed for avoiding overstocking of the material. While fixing the level, the following are the factors to be considered. 

Rate of consumption and lead time.



Availability of funds.



Nature and durability of materials.



Price fluctuations.



Supply conditions.



Cost of carrying the inventory.



Maximum requirement for production purpose at any point of time.

Maximum level = (Reorder level + Reorder quantity) - (minimum consumption *

minimum lead time).

STOCK VALUATION:Inventories begin the assets of a company are shown in the Balance Sheet and Profit and Loss account. The valuation of inventories is a difficult task as the stock of a particular item may consists of the same material purchased a various prices. They can be valued on the basis of average price, last price paid or on the current market price. Each of these values would be different for the same. Inventories measured by money value usually constitute the major element in the working capital. The need to control inventories apart from fulfilling other purposes such as: 

The preparation of accurate cost accounts.



Evaluation of purchase performance.



An indication of quantity and value of stores with out physical stock taking.



Working out important management ratios like sales to inventory, purchase to inventory etc.,

54




The preparation of materials budget.

Material Receipt Voucher (MRV) or the Goods Received Note (GRN) entry is prepared after the material is purchased received inspected and booked in stores. Entry for the value of purchase is not as simple as the receipt of goods i.e., quantity received.

FACTORS INFLUENCING VALUATION:They are : 

Size of inventory.



Turnover.



Physical nature of inventories.



Frequency and magnitude of price fluctuation.



Price outlook.



The tax laws.

The method adopted for inventory valuation affects the profits reflected in the profit and loss account. Liquidity and profitability decisions of a company are influenced by the method of inventory valuation: 

High inventory valuation leads to,



Inflated profits.



False sense of adequacy of working capital.



Possible distribution of dividends / bonus.



Excessive tax payments.

The value of purchase includes:

Invoice price.



Sales tax / octroi.

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

Excise duty / customs duty



Insurance.



Freight, carriage, handling charges etc.

The M.R.V. is priced for the appropriate invoice and the material account is debited is the stores ledger.

PHYSICAL VERIFICATION OF STOCK:-

Checking of stock by physical verification is an essential feature of stock control such checking may be periodic or continuous. Under periodic stock verification system, all the items of the stock are to be verified once in a year at the time of preparing annual accounts resulting in the following difficulties. 1. Loss of stoppage of production for stock taking.

2. Shortage of experienced stock-verifiers, if all items of stores are to be verified at a time. 3. Thus, quality of verification suffers. 4. Discrepancies reveled during verification are rectified only at the end of the year. 5. Element of “surprise check” which helps to detect irregularities are absent.

ISSUE OF MATERIALS:-

Materials issued from stores should be valued at the rate they are carried n stock. Materials are valued at cost and entry in the stores ledger is made with every receipt. Different lot of materials may be received at different ices. Hence, when issues are made from stock, it may happen that materials from more than one lot may have to be issued. Which price will be application in such case? Actual cost or average price,

56


Market price or national price? Various methods for pricing materials issued form stores are classified in the following manner. A. Cost price method: 1. Specific price 2. First in First out(FIFO) 3. Last in last out(LIFO) 4. Highest in, first out(HIFO) 5. Base stock price B. Average price method: 1. simple average 2. Weighted average 3. Periodic simple average 4. Periodic weighted average 5. Moving simple average 6. Moving weighted average C. Notional price methods: 1. Standard price 2. Inflated price 3. Re-use price

FIFO (First-In-First-Out) Method:It is assumed that materials purchased are issued in strict chronological order i.e. oldest stock are issued first at the oldest cost price listed on the stock ledger sheets. The material on hand at all items is the most recent purchases made and frequently termed as the “recent purchase” method.

57


Suppose, the quantity demanded is greater in amount than the units remaining in the first lot, he uses the cost price of the second lot, then third, fourth and so on until enough material is obtained to fill the requisition. Benefits:

Simple to understand & easy to operate.



Logical method as material received first.



The method recovers the cost price of the materials.



This method is useful when prices are falling.



Closing stock wil be valued at the market price.

Limitations:

Increase the possibility of clerical errors.



In case of fluctuations in prices of materials, comparison

between one job and the other job becomes difficult. 

For pricing one requisition more than one price has often to be

taken, then prices rise the issue price does not reflect the market price as materials are issued from the earliest consignment profits are inflated creating income tax problems. Application:-

It can be used for materials, which are subject to deterioration and obsolescence. It is also useful when transactions are not too many and prices of materials are fairly steady.

LIFO (Last-In-First-Out) Method:Materials are issued at actual cost and this is also suitable when a price fluctuation is not high. This method is also known as “replacement cost” methods. Here, goods are issued from those recently purchased at the cost of the last lot of

58


materials received. The production costs are closely related to current price level. It is favored frequently because it results in reducing income taxes during a period of rising prices. Benefits:

Simple to operate and useful when transactions are not too many and the prices are fairly steady.



This method recovers the cost from production because actual cost of material is charged to production.



Current market prices of materials are reflected in the cost of sales provided the materials are recently purchased.



It is suitable in times of rising prices.

Limitations:

Results in clerical errors.



Comparison between one job and the other job will become

difficult. 

For pricing a single requisition, more than one price has often to

be adopted. The stock in hand is at price that does not reflect current market price. Hence, closing stock will be understated or overstated in the balance sheet. Application:-

It is used in times of rising prices because material will be issued from the latest consignment at a price which is closely related to the current price levels.

HIFO (Highest-In-First-Out) Method:-

59


In this method the highest cost is taken for issues of materials in the stock. It is based on the assumption that the closing stock of materials should be always remain at the minimum value. Benefits:

It is helpful in increasing the price of the contract or products.

Limitations:

This method is not popular at it always under values the stock,

which amounts to creating a secret reserve. Application:-

This is mainly used in case of cost plus contracts or monopoly products.

NIFO (Next-In-First-Out) Method:-

In this method the replacement value is taken into account materials are issued at a price at which they can be replaced. There fore, cost of the materials is not considered. Benefits:

It discloses whether the buying is efficient or in-efficient. These

will be efficiency is buying if the marketing price is higher than the cost price. Limitations:

Cost price of the materials from production is not recovered

because are issued at the market price. 

It makes stores ledger unnecessarily complicated by introducing

the element of profit or loss.

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Application:-

This method is considered to be the best where quotations have to be sent, as it would reflect the latest competitive conditions so far as materials are concerned. But this method is rarely used.

BASE STOCK METHOD:Materials are issued at cost while maintaining a base or the minimum stock at original cost and are never touched except in emergency conditions. The base always valued at the cost price of the first lot and is carried forward as a fixed asset. This method works with some other method is generally used with FIFO or LIFO method. Any quantity over and above the base is issued in accordance with the other method, which is used in conjunction with this method. The objective of this method of this method is to issue the material according to the current prices. This will be achieved only when the LIFO method is used along with the Base Stock Method. There are two components in stock here- Base stock valued at base price and latest purchased stock not yet issued to production valued at actual. Benefits:

Base stock maintained will help to meet any emergency situation like stock-outs etc.,

SIMPLE AVERAGE METHOD:This method consists of re-calculating an average price after a new consignment of good is received at a new price. Taking the price paid per unit of stock till date and the price of the new consignment does this. Simple average price calculated by dividing

61


the total of unit purchase price of different lots in stock on the date of issue by the number of prices used in the calculation and quantity of different is ignored. Benefits:

Rational, systematic and not subject to manipulation.



This is the best method when prices fluctuate considerably

because this method tends to smooth out fluctuations in prices. Limitations:

This method may lead to over-recovery or under-recovery of

cost of materials from production because quantity purchased in each lot is ignored.

WEIGHTED AVERAGE METHOD:Similar to Similar Average Method, this method takes into account the total quantities along with the total costs. Benefits:

It recovers the stock price of the materials from productions.



This method eliminates the necessary for adjustments in stock

valuation. 

Issue prices are not calculated each time issues are made. They

are charged only when new lot of materials is received. Limitations:

Chances of clerical errors.



Closing stock is not valued at current cost.

Application:-

This method is mostly used by different organizations because it satisfies most of the conditions of a good method of valuing material issues. 62


FINANCIAL MANAGER’S ROLE IN INVENTORY MANAGEMENT:For a majority of the companies, the inventory represents a substantial investment. The inventory program is part of the planning budget which often falls with in the financial area. As management becomes increasingly aware of the necessity of inventory control, ultimate responsibility is placed more and more in the and of the financial manager who is playing an increasingly important role in determining the nature of control exercised the methods of balancing the relative cost involved and measurement of performance of inventory control. He may be having supervisory authority in this area or he may be a member of policy committee with broad responsibilities. In smaller firm, he often participates even more directly in the management of inventories. Though the corporate financial officer may not be directly connected with inventory policies these have a direct and important bearing on the financial need, of the firm. The financial officer can do a good job of anticipating change in the need for funds if he thoroughly understands the implication of changing inventory policies where financier are a limiting factor.

“GOOD INVENTORY MANAGEMENT IS GOOD FINANCIAL MANAGEMENT”.

The greater the opportunity cost of fund invested in inventory the greater the incentive to reduce the lead time required receiving inventory once an order is placed. The greater the efficiency with which the firm manages its inventory, the lower the required investment in inventory. Inventories should be under constant review.

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The financial office should pay attention to the following aspects in inventory management. 

Action taken against imbalance of raw-materials and goods in process inventory that may limit the utility of stock that item which is in shortest supply. Here one appreciate the common saying that the strength of its weakest link.



The full safety against of inventory has a prohibitive cost. There should, however reasonable procurement lead time assumption and safety block level.



Production schedules, as far as possible, should be firmly adhered for reducing inventory of raw material and work-in-process goods. In case of changes of production schedule, purchasing department should set early notification.



There should be an efficient system to dispose of goods that are obsolete, surplus or unusable for production.



Continuous efforts have to be made to shorten the production cycle. The longer production run should be worth the cost and rich of the extra inventory investment.



Special pricing policy may be required to move extremely slow moving finished item.

The business firm which is chronic patients of shortage of funds may find to them advantage that a serious look into their inventory accumulation proves highly rewarding. Often one is inclined to agree with the observation that “when you need money look at your inventories before you look, to your banks”. Even if there is no shortage of funds in a business, the financial executive has a participate actively in the

64


formulation of inventory policies with a view to speeding inventory turnover ratio and maximizing return on investment. Financial manager are concerned with any aspect of inventory management that is controllable from the stand point of reducing inventory cost and risk. 1.1 STATENENT OF PROBLEM

“A study on inventory management.” With reference to Larsen & Toubro Ltd., is taken by the researcher now a days inventory management is very important to improve the business at the same time to improve the profits effectively and efficiently. 1.2 OBJECTIVE OF THE STUDY

For the purpose of these studies specific objectives were identified and analyzed. a.

Analysis of inventory turnover period and turnover ratios of the company.

b.

Proportionate growth of assets with respect to inventories of the company

c.

To project the inventory management technique adopted by the company.

d.

Classification of inventories of individual components of the company

e.

Determination of the growth rate of individual components of the company

f.

Overhaul costs of inventories and reduction in costs Possible by reducing at least 10% inventories.

g.

To suggest ways and means of effective inventory management.

1.3 SCOPE OF THE STUDY

Inventory is the life blood of the company and both high as well as low blood pressure are equally dangerous to the life and health of a person, likewise excessive inventory or under inventory both are harmful to the economic life and health of the

65


organization. So inventory of a reasonable size must always be kept by an organization to maintain its good health.

A basic function of inventory management allows the successive stages in the purchasing,

manufacturing

and

distribution

process

to

function

somewhat

independently of on another. The process and movement of inventories, some time called pipe line stocks. There is lot size inventory where more units are manufactured or purchased than needed for present use. The reason being the economy may be obtained form larger lots verses smaller lots through lower total set up cost or quantity discounts. When the demand for an item is known to be variable or seasonal, it may be more economical for a firm to include some of the fluctuations by permitting inventories.

1.4 METHODOLOGY

Data is the collection of necessary details to gain further information. The data is classified into two types. They are:-

Primary data: Primary data are the first hand information collected from original sources through various methods such as observation, interview, etc. Primary data is collected by interviewing certain executives who were chosen on the bases of their in–depth knowledge and work experience in the company. The interview was informal in nature in order to gain as much information as possible. A suitable interview schedule was prepared to collect the primary data, which is enclosed in the annexure.

Secondary data: Secondary data is the data, which is collected from sources, which contain data, which have been collected and compiled for another purpose. The secondary sources in this study consist of published records and reports. A research on this nature is by and large

66


desk job work, so most of the data involved here is secondary in nature and they include journal- India Today, Business world. Other books and accounts maintained by the officials of the company. Income statements and Balance Sheets. 1.5 LIMITATIONS OF THE STUDY

The investigator has faced the following limitations during the course of study. As this is the study undertaken to fulfill the academic requirement, it is bound have certain limitations. Most prominent among them are. 1.

It is not possible to make a comparative analysis due to inability in getting information and data relating to other industries.

2.

Time to submit the report is very short.

3.

As the study is not empirical one as we do not have the experience it is just an amateur one.

4.

The study is purely of academic interest.

5.

To study a subject like ratio analysis in detail, a time was too short.

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CHAPTER-2 2.1 DATA ANALYSIS AND INTERPRETATION

This involves following steps:DATA ANALYSIS PLAN;

For the purpose of this study, a researcher has adopted the following methodology. A. Identification of study period 2007-2009. B. Collection of published information (Inventory sheet & B/s). C. Identification of construction of financial sheet, which are likely to reflect efficiency

of inventory management. D. Interpretation of these i.e.. a) Inventories are a percentage of total assets. b) Inventories are a percentage of current assets growth of inventory in

percentage. c) Growth of total assets/ growth of current assets. d) Determining whether growth of inventories is proportional to growth of Total

assts and current assets. e) Classification of inventories into finished goods, raw materials, spares, WIP,

and Interpretations these are in annual basis. f) Determination of growth rates of components of inventories. g) Possible reduction in inventory costs for a 10% reduction of inventories over

Study period. h) Finally conclusions and recommendations.

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Inventory turnover ratio: Inventory turnover ratios are stock turnover ratio which indicates number of times stock is turn over during a year. In other words it is ratio between sales and average inventory. A slow turn over result in over investment in inventory and rapid turn over contributes a high working capital. Table showing inventory turnover times for the years 03-06 YEAR

SALES

06-07 07-08 08-09

17,645.29 24,946.11 33,856.54

AVERAGE

TURNOVER

INVENTORY 3,001.14 4,305.91 5,805.05

TIMES. 5.88 5.79 5.83

Graph showing inventory turnover times for the years 07-09

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Size of inventory:The position of inventory and its percentage growth over the previous year for the company as a whole. A minute study in terms of the progressive base. Year percentage growth however indicates that pace of growth of total inventory. (Table 1) Showing progressive base year percentage growth of total inventory YEAR

TOTAL INVENTORY Cr)

2006-2007 2007-2008 2008-2009

3,001.14 4,305.91 5,805.05

(in

GROWTH OF TOTAL INVENTORY.(%) 35.78 43.47 34.81

The table summarizes the growth of total inventory during 20076-09. The calculation is done based on the following formula. Growth of the inventory = (base year – following year) / base year. So based on the above formula in the year 2006-07 growth is 35.78%. But in the year 07-08 the growth is 43.47%. Again in the year 08-09 the growth is came down to 34.81%.

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(Table 2) Showing The Percentage Of Inventory In Current Assets (Rs In Cr)

YEAR

INVENTORY

2006-2007 2007-2008 2008-2009

3,001.14

CURRENT ASSETS 9,499.46 12,450.78 16,553.70

4,305.91 5,805.05

PERCENTAGE

31.59 34.58 35.07

In the year 2006-07 the percentage of inventory in current assets was 31.59% but in 07-08 the percentage of the inventory in current assets increased to 34.58% where as in the year 08-09 the percentage of inventory in current assets is increased to 35.07%. The over all position of the inventory in current assets is keep on increasing.

Graph Showing The Percentage Of Inventory In Current Assets

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(Table- 3) Showing The Percentage Of Inventory In Total Assets (Rs In Cr)

YEAR

INVENTORY

TOTAL ASSETS

PERCENTAGE

2006-2007 2007-2008 2008-2009

3,001.14

7,846.18 13,139.07 19,015.72

38.24 32.77 30.52

4,305.91 5,805.05

L & T inventories % with the total assets has come down from the 21.22 to 21.85 in the year 2003. in the year 2004 it has come up 21.85 to 22.02 Graph-3 Graph Showing inventory as a percentage of Total Assets

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(Table -4) Table showing Raw material turnover Ratio. Formula

Sales

Raw material Turnover Ratio:-

Average Raw Material

Year 2006-07

R M (% ) ratio 1.07

2007-08

1.51

2008-09

2.06

L&T, R M inventory percentage with total inventory has come up from 1.07 to 1.51 in the year 2008 & has come up to 2.06 in the year 2009. Graph-4 Graph showing Raw material turnover Ratio.

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(Table – 5) Table Raw material holding Period. Formula

Raw material holding Period : -

Year

365 RM Turn Over Ratio R M holding period

2006-07

99.07

2007-08

119.65

2008-09

109.50

The Raw material holding period has increased from 99.07 to 119.65 in 2008 and decreased to 109.50 during the year 2009. Graph-5 Graph Raw material holding Period.

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(Table-6) Table showing Working In Progress Turn Over Ratio Formula

Sales

WIP TO Ratio : -

WIP Inventory Year 2006-07

WIP (% ) ratio 37.44

2007-08

35.68

2008-09

32.52

The working in progress at L&T has decreased in 2008 from 37.44 to 35.68 again in 2009 it has decreased to 32.52. Graph-6 Graph showing Working In Progress Turn Over Ratio

(Table – 7) Table showing WIP holding Period. 75


Formula

365 WIP holding Period : -

WIP Turn Over Ratio Year 2006-07

WIP holding period 9.75

2007-08

10.23

2008-09

11.22

The WIP holding period of L&T which is 9.75 in the year 2007 Which has increased to 10.23 in 2008 later again it increased to 11.22 in the year 2009. Graph-7 Graph showing WIP holding Period.

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(Table – 8) Showing Finished Goods Turn over Ratio Formula

FG TO Ratio

Sales

:-

FG Inventory Year 2006-07

Finished Goods(%) ratio 7.93

2007-08

12.00

2008-09

21.08

The Finished goods turnover ratio of L&T was 7.93 in 2007, which increased to 12.00 in 2008, in the year 2009 it increased to 21.08. Graph-8 Graph Showing Finished Goods Turn over Ratio

77


(Table – 9) Showing Finished Goods holding Period. Formula

365

Finished Goods holding Period:

FG Turn Over Ratio Year 2006-07

FG holding period 46.02

2007-08

30.41

2008-09

17.31

The finished goods holding period was 46.02 in the year 2007. which later In the year 2008 decreased to 30.41, but drastically went down in the year 2009 to 17.31. Graph-9 Graph Finished Goods holding Period.

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Total assets turnover:(Rupees in Cr) By using the formula which is given below we can calculate the total turnover ratio. Total assets turnover = Cost of goods sold / average total sales.

For the year 2008-09 = 29,714.52 / 25804.3 = 1.15. For the year 07-08 = 21,706.88 / 25804.3 = 0.84. For the year 06-07 = 15,612.16 / 25804.3 = 0.61. After calculating the total assets turnover, in the year 06-07 the ratio was 0.61 but in the year 2007-08 it increased to 0.84 later in the year 2008-09 it increased to 1.15. So it is clear that the part of the turnover in the total assets is slight increase. It is showing positive effect to the company.

Fixed asset turnover:The following is the formula for calculating the fixed asset turnover. Fixed asset turnover = cost of goods sold / average total fixed assets. For the year 2008-09 = 51,496 / 36,882.43 = 0.81. 79


For the year 07-08 = 36,454.4 / 36,882.43 = 0.59. For the year 06-07 = 22,246.9 / 36,882.43 = 0.42. After calculating the fixed asset turnover, in the year 06-07 the turnover ratio was 0.42 but in the year 07-08 the turnover is increased to 0.59 later in the year 08-09 it increased 0.81. So it is clear the part of the turnover in the total assets is increase. It is positive effect to the company.

Current asset turnover:The following is the formula is for current assets turnover. Current asset turnover = cost of goods sold / average current assets turnover For the year 2008-09 = 166,574.2 / 129,779.5 = 0.23. For the year 07-08 = 126,497 / 129,779.5 = 0.17. For the year 06-07 = 96,267.3 / 129,779.5 = 0.12. After calculation of current asset turnover for three years, in the year 06-07 the ratio was 0.12 but in the year the ratio is increased to 0.17 later it again increased to 0.23. So it is clear that it is positive effect to the company.

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2.2 SUMMARY OF FINDINGS:After analysis the following points stand out: 1. The entire documentation inventory department in the company is

computerized. 2. Inventory conversion of L&T is much better compared to its Competitors

3. Material planning is done based on orders obtained from different customers. The materials requirement plan is processed to give exact requirements of materials to be produced. 4. Vendors are rated based on their performance with respect to delivery, a quality price standard. 5. The received materials are inspected as per standard plan and finished

products are tested 100% based on material released. They are maintained and handled properly. 6. Physical verification of high value materials in holding store is conducted in accordance with pre determined programs. 7. All materials are stored in right condition at respective locations and the company has materials, which are slow moving and non moving, which are disposed of at regular intervals. 8. The company has been marinating the accounts perfectly which is audited by

internal and external auditors. 9. The scrap obtained in the process is comparatively very low. 10. Company follows the annual verification of stock and is being re verified by the company’s statutory auditors at regular intervals.

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2.3 SUGGESTIONS:-



Technical audit should be made on raw material, spares to see that it is not over stocked or under stocked. There should be coordination between production process and inventory handling department for efficient outcome.



It should also undertake to use various scientific inventory controls such as just in time.



To reduce the stocking in the finished goods of inventory, the sales department should be activated. Some new sales techniques should be injected to increase sales.



The company should follow EOQ to reduce over stocking of materials, purchases at competitive prices, to reduce the cost of product.



Better co ordination among purchase, production, marketing and finance department will help in achieving greater efficiency in inventory management.



Company should develop long term relationship with vendors. This would help in improving quality and delivery.

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Chapter – 3 CONCLUSION AND RECOMMENDATIONS:The implementation of SAP in LARSEN & TOUBRO (MYSORE) Limited. has given it a high degree of customization to different scenarios of the business. It is reaping the benefits of SAP, which are evident in the day-to-day affairs of the company.

SAP has enabled greater degree of co-ordination and communications between departments and the company as a whole. It can keep the personnel up to date as information is accessible throughout the company.

The work procedures are being strictly followed. This is possible as SAP has many inbuilt internal controls which have been highlighted throughout this project.

1. The purchase system of the company involves large hierarchy which should

be minimized so that it will reduce the lead time and inventory holdings, by using

some popular technique which are suitable for L&T i.e. ABC

Analysis, EOQ, JIT. 2. The company should increase distribution channels since the present system

is not sufficient. They have left out some state without distribution channels. It is recommended to have a consignee type of distribution in the state where distribution channels are not existing which will reduce the cost of maintenance of depots, stock holdings of other depots and transportation costs can be reduced 3. It is suggested for the company to go automation of the organization by

adapting e-commerce techniques like B2B, B2C, communication can be improved dramatically, since cost and time involved are also reduced.

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4. It is suggested to prepare proper demand forecasts, production planning, so

that It in turn reduces the inventory holdings by purchasing important, necessary and required raw materials.

CONCLUSIONS:Inventory is one area where the organization have ample room to reduce the cost. “INVENTORY MANGAGEMENT” started off with these motives and today has enhanced leaps and bounds. There are immense like just-in-time (JIT) there should be a constant watch on the quality and quantity of inventory that has to be maintained by an organisation to help profit maximization.

While conducting project work I have learned how to collect data for there research from various data sources. The research work has helped researchers to learn managements of inventories.

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Santhosh (Inventory Mgt)1 L&T - Copy

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