MARUTI UDYOG LIMITED(MUL)-II

“INVENTORY MANAGEMENT”

Submitted to: Submitted by:

Prof. Meena Sharma Aashna Garg

UBS, PU Angad Singh

Mohit Goyal

Nikhila Kharb

Ravneet Kaur

Vishal Vivek

MARUTI UDYOG LIMITED

Maruti Udyog Limited, is an automobile manufacturer inIndia. It is a 54.2%-owned subsidiary of Japanese automobileand motorcycle manufacturer Suzuki Motor Corporation. Asof January 2017, it had a market share of 51% of the Indianpassenger car market.

ABOUT THE CASE

• The raw material consumption cost was 75-83% of net sales. Therefore the company has been paying special attention to its inventory management.

• Around 70% of the firm’s components are outsourced.

• Average inventory turnover ratio of the company increased from 11.9 (in 2005-06) to 13.9 (in 2006-07).

• The company has undertaken various initiatives to improve it’s inventory management because of which there has been an increase in its average inventory turnover ratio over the years.

1. Are you satisfied with the claim of the

management regarding the improvement in the

management of inventory by MUL? If so, on what

basis.• Inventory Turnover ratio is the efficiency ratio that measures

how many times average inventory is sold or turned during a period. It shows that how effectively the inventory is managed by the company.

• The average inventory turnover ratio of the company increased from 11.9 in 2005-06 to 13.9 in 2006-07.

• In the year 2001-02,

▫ Net sales: 7067.7cr

▫ COGS: 75% of Net sales

▫ Average Inventory: 820.55cr

▫ Inventory Turnover Ratio = COGS/ Average Inventory

(.75*7067.7)/820.55=6.46

Continued…

• In the year 2006-07,

▫ Net sales: 14592.2cr

▫ COGS: 75% of Net sales

▫ Average Inventory: 843.17cr

▫ Inventory Turnover Ratio = COGS/ Average Inventory

(.75*14592.2)/843.17=13.3

• 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 doing good in inventory management.

2. What steps has MUL taken in the recent past to

improve its inventory management?

• Inventory management of MUL has been improved due to the Just-in-time (JIT) inventory management followed by the company.

• The initiatives were:

▫ Use of Bar Code

▫ Delivery instruction system

▫ Kanban production system

▫ Reduction of vendor costs

▫ Vendor management

Continued…

• Bar Codes:

▫ Reduce processing time

▫ Increase accuracy of data

▫ Increase speed of operation

• Delivery Instruction System:

▫ Reduced lead time (start to end production time).

▫ Reduced inventory requirements (buffer stocks)

▫ Online buying reduced the promotion cost.

Continued…

• Kanban Production System:

▫ For casting of delivery dates is done every 15 days and the supplies plan accordingly.

▫ Connected through electronic communication system.

▫ E-Nagare is linked to material requirement planning (MRP).

• Vendor Management:

▫ Using its vendor development program, Maruti has reduced the number of vendors from 370 in 2000 to 299 in 2003 and plans to reduce it further to 100.

▫ 80% raw material comes from within 100 kms

▫ Many small suppliers to Big tier 1 suppliers

▫ Better operational efficiency and economies of scale.

Continued…

• Localization:▫ Working to develop capacity of the vendors to manufacture

and supply components.

▫ Minimum localization 70% and max 96%.

▫ Increased proportion of the Indigenous products.

3. What techniques has the company taken

recourse to in order to cut down its ordering costs

and carrying costs?

• Ordering costs are the expenses incurred to create and process an order to a supplier.

• carrying cost of inventory or holding cost refers to the total cost of holding inventory.

• Steps to reduce these costs:

▫ Vendor Management

▫ Localization

Vendor Management▫ 70% suppliers within 100km radius, components can be

supplied directly to assembly line, thereby reducing the packaging costs.

▫ Shifting from small suppliers to tier-I suppliers who supply assembled components, thereby reducing ordering costs.

▫ Man hours spent per car reduced by 54% in last three years.

▫ Encouraged vendors in far-away places to set up warehouses nearby.

▫ WWP(Worldwide Purchase) system- where a vendor may become a sole supplier for a Suzuki product in several countries.

▫ Milk run systems- to utilize truck’s carrying capacity by pooling material from different vendors.

Localization:

▫ Company has worked on increasing the proportion of locally sourced components and raw materials reducing the carrying costs.

▫ They aim to achieve 90% localization level. The proportion of domestic to imported steel has increased from 20:80 to 50:50 within three years.

▫ This proportion is expected to rise more in the coming years.

▫ The raw material used from domestic suppliers has grown from 73% in 2003 to 87% in 2007.

4. How has MUL successfully

implemented the JIT?

• Company is making a good use of technology, ie. Delivery instruction system, Bar code and e-Nagare.

• Proper and efficient vendor management.

• Increasing supplies from domestic suppliers, thereby reducing costs.

• Maruti supported its vendors for setting up plants, automation of process and value engineering.

THANK YOU