Adithyan CP

MARUTI UDYOG LIMITED II Arun Kumar

Preet Ratan Singh
I N V E N TO R Y M A N AG E M E N T AT M U L
Yatin Kumar
Iqbal Singh
Govind Singh
ABOUT THE CASE (BRIEF SUMMARY)
The raw material consumption cost was 75-83% of net sales so MUL was efficiently
utilizing its inventory as they were using new approaches in inventory management.
Around 70% of components were outsourced that helped in reducing overall cost.
Average inventory turnover ratio of the company increased from 11.9 (2005-06) to
13.9 (2006-07). After this year the inventory turnover ration kept on increasing this
showed that maruti has been utilizing its inventory very effectively. The current
inventory turnover ratio is 23.69, which is huge jump from 2006-07.
The company has taken various new approaches to inventory management due to
which their efficiency has increased.
ARE YOU SATISFIED WITH THE CLAIM OF THE MANAGEMENT REGARDING
THE IMPROVEMENT IN THE MANAGEMENT OF INVENTORY BY MUL? IF SO,
ON WHAT BASIS.
In 2001-02 Inventory turnover ratio :
 Net sales: 7067.70
COGS: 79% of net sales
COGS: 5583.48
Avg. Inventory: 773.3
Inventory turnover ratio = COGS/Avg. Inventory
= 5583.48/773.3 = 7.22
In 2006 – 07 Inventory turnover ratio :
 Net sales: 14592.2
COGS: 79% of net sales
COGS: 11527.838
Avg. Inventory: 797.2
Inventory turnover ratio = COGS/Avg. Inventory
= 11527.838/797.2 = 14.4604
CONTD.
Thus, from the data we calculated the inventory turnover ratios and found out the
increase in ratio from 6.46 in 2001-02 to 13.3 in 2006-07.
Thus, we can say that the company is efficiently managing its inventory since the
inventory turnover ratio is coming out to be positive and increasing year by year.
WHAT STEPS HAS MUL TAKEN IN THE RECENT
PAST TO IMPROVE ITS INVENTORY MANAGEMENT?
The initiatives were:
 Bar Code :
 The barcode is used at various levels for identification that helps in reducing the receiving
inspecting, procurement cost.
 Accuracy of data also increased as there was less chances of error.
 Cost of storing reduced as JIT was implemented.
 Delivery instruction system
 Reduced lead time.
 Every 15 days the system required the vendors with details of components required. This
helped in early start of production of components and in the right quantity.
CONTD.
 Kanban production system
 Forecasting is done in advance and the supplier gets the information about the requirement so
that they can reduce the lead time.
 Connected through electronic communication system.
 Vendor management
 Instead of buying from many small suppliers maruti directly bought from Big, tier 1 suppliers.
 Maruti supported its vendors in many ways like setting up plant for them, automating the
processes and also reducing the cost of capital for its vendors by taking advantage of their
superior credit rating.
 80% raw material comes from within 100 kms so that transportation costs are reduced.
 Localization
 Minimum localization maintained was 70% and max 96%.
 MUL gradually reduced its dependence on imported steel. Increased indigenous products.
 Company started reducing its number of suppliers.
WHAT TECHNIQUES HAS THE COMPANY TAKEN RECOURSE TO IN
ORDER TO CUT DOWN ITS ORDERING COSTS AND CARRYING COSTS?
Ordering cost is the cost that is incurred for procurement of raw materials.
Carrying cost is the cost associated with maintaining the same level of raw materials.
Steps for reducing ordering cost:
 Use of Bar codes : Bar codes were used to scan items that helped in reducing the cost of receiving and
inspecting of materials that arrive at the production facility.
 Delivery instruction system : Less clerical and staff was required since order for components was given
through automation.
Steps for reducing carrying cost :
 Vendor management : Encouraged vendors far away to set up plants nearby, 80% suppliers within
100 km radius reducing packaging cost, shifting from small suppliers to tier 1 suppliers who supply
assembled components.
 Localization : Company increased use of local materials and reduced imports to cut down the cost.
HOW HAS MUL SUCCESSFULLY IMPLEMENTED THE
JIT?
Company is making a good use of technology like the Delivery instruction system, Bar
code and Kanban production system.
Efficient vendor management was implemented.
Increasing supplies from domestic suppliers, that helps in reducing cost.
Most of the work inside the production facility was automated so that less staff is
required.
Company was most successful in implementing the JIT approach as components
arrived just few hours before they had to be used so storage of inventory was not
needed.
THANK YOU !!!!