EFFECTIVENESS OF INVENTORY MANAGEMENT

DIVYA.P

CONTENT

Acknowledgement Introduction to Inventory Management Research Design Company Profile Product Profile Tables and Graphs Findings Recommendations Bibliography

3 4-12 13-14 15-21 22-24 25-44 45 46 47

ACKNOWLEDGEMENT

I must first and foremost thank my parents for their constant support during the completion of this project.

I am extremely grateful & thankful to the Management of Bosch, Naganathpura, Bangalore, for having given me an opportunity to pursue the project; interact with the colleagues & make this subject study. I would like to extend my sincere thanks to Mr. D. Sathish Kumar, Dy. Manager, Costing, Accounting & Controlling SG Division, for the guidance, support & cooperation extended to me for completing the project. I am also very much thankful to Ms. R.M. Kavitha, Mr. R. Manjunath & other colleagues of Costing, Accounting & Controlling Department of SG Division for having spared their valuable time & giving me all the required guidance & encouragement, without which, I would not have been able to complete this project on time.

I would also like to thank my College Guide Mr. Murlidhar V, Head of the Department, Management, Surana Degree College for extending me all the required support and guidance.

Thank you all! Divya P

INTRODUCTION

A. INTRODUCTION TO INVENTORY The term inventory has been defined by several authors. The more popular of them are: the term inventory includes materials raw, in process, finished packaging, spares and others stocked in order to meet an expected demand or distribution in the future. Another definition of inventory is that it can be used to refer to the stock on hand at a particular time of raw materials, goods-in-progress of manufacture, finished products, merchandise purchased for resale, and the like, tangible assets which can be seen, measured and counted.. in connection with the financial statements and accounting records, the reference may be to the amount assigned to the stock of goods owned by an enterprise at a particular time.

B. MEANING OF INVENTORY Inventory is the total amount of goods and/or materials contained in a store or factory at any given time. Store owners need to know the precise number of items on their shelves and storage areas in order to place orders or control losses. Factory managers need to know how many units of their products are available for customer orders. In accounting inventory is considered an asset.

C. ORIGIN OF THE WORD INVENTORY The word inventory was first recorded in 1601. The French term inventaire, or "detailed list of goods," dates back to 1415.

D. DIFFERENT CATEGORIES OF INVENTORY

A. Production Inventories - Raw materials, parts, components which enter the firms product in the production process. These may consist of two general types. They are

i. ii.

Special items manufactured to company specifications, Standard industrial items purchased off the shelf

B. MRO Inventories - Maintenance, repair and operating supplies which are consumed in the production process but which do not become part of the product. (Example lubricating oil, soap, machine repair parts.)

C. IN Process Inventories Semi finished products found at various stages in the production operation. It includes the set at large of unfinished items for products in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage.

D. Finished Goods Inventory Completed products ready for shipment. Merchandise meant for resale is not included in the above classification of inventories. The exclusion of merchandise is justified on the ground that a manufacturing establishment does not buy anything for resale in the same conditions. It buys raw materials and other items for their conversion into finished products. A trading concern, however buys finished goods for resale. The present study is concerned with industrial establishments and not with trading concerns.

E. OBJECTIVES OF INVENTORY Inventories include Raw materials, part finished goods, finished and operating supplies. Each of these serves specific purposes. The following are the objectives of inventory management

1. To facilitate smooth operation of the manufacturing process. 2. Inventories are held to facilitate product display and service to customers, batching in production in order to take advantage of longer production runs and provide flexibility in production scheduling. 3. To ensure uninterrupted flow of production without resulting in shortage or non-availability of materials and other requirements. 4. To minimize investment in inventory. 5. To reduce material handling costs. 6. Reasonable utilization of people.

F. CHARACTERISTICS OF INVENTORY 1. Inventory represents a financial investment for the company. 2. Inventories become parts of the cost of goods sold are therefore a business expense. 3. Inventories use storage space, require handling income tax, require insurance and sometimes deteriorate become obsolete or get lost or stolen. 4. The availability of the right item at the right time is necessary for operating any production process or satisfying a demand by a customer for a finished product. 5. Inventories are not self correcting. They must be managed and effective management requires appropriate measures of performance. 6. To keep material cost under control so that they contribute in reducing cost of production and overall costs. 7. To eliminate duplication in ordering or replenishing stocks. This is [possible with the help of centralizing purchase. 8. To design proper organization for inventory management. 9. To minimize losses through deterioration, pilferage, wastage and damages. 10. To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the sores. 11. To facilitate furnishing of data for short term and long term planning and control of inventory. Both excessive and in adequate inventories are not desirable. There are two danger points within which the firm should operate. The objective of inventory management should be to determine and maintain optimum level of inventory investment. The optimum level of inventory will lie between two danger points of excessive and inadequate inventories.

G. INVENTORY COSTS Inventories cost money. The cost factor must be considered while taking into consideration while taking any decisions regarding inventories. Inventory cost includes ordering cost, carrying cost, out of stock or shortage cost, capacity cost. Each of these comprises several elements as shown below

1. Ordering costs

A. Cost of placing an order with the vendor for materials.

i. ii. iii. iv.

Establishing reliable source for raw materials and WIP. Giving schedules followed for supplies Preparing a purchase order. Processing payments.

B. In-house Manufacturing

i. ii.

Machine set up. Start up scrap generated from getting a production run started.

2. Carrying Costs

A. Costs connected directly with materials

i. ii. iii.

Obsolescence Deterioration Pilferage

B.

Financial costs

i. ii. iii. iv.

Taxes Insurance Storage Interest (as the cost of capital borrowed to acquire and maintain the inventories).

C. Aljian elaborates the carrying costs in greater details as follows

Capital costs i. ii. Interest on money invested in inventory Interest on money invested in land and building to hold inventory. iii. Interest on money invested in inventory holding and control equipments.

Storage Space costs

i. ii. iii. iv. v. vi.

Rent on building. Taxes and insurance on building. Depreciation on warehouse installation. Cost of maintenance and Repairs. Utility charges, including heat, light and water. Salaries of security and maintenance personnel.

Inventory Service costs i. ii. iii. iv. Taxes on inventory. Labour costs in handling and maintaining stocks. Clerical expenses in keeping records. Employee benefits for ware house and administrative Personnel.

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Handling equipment costs i. ii. iii. iv. Taxes and insurance on Employees. Depreciation on equipment. Fuel expenses. Cost of maintenance and repairs.

Inventory Risk concepts i. ii. iii. iv. Obsolescence of inventory. Insurance on inventory. Physical deterioration of inventory. Losses from pilferage.

3. Out of stock costs A. Back Ordering. B. Lost Sales.

4. Capacity Costs

A. Overtime payments when capacity is too small. B. Layoffs and idle time when capacity is too large.

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H. INVENTORY CONTROL TECHINIQUES Inventory control techniques are employed by the inventory control organization within the frame work of one of the basic inventory models viz, fixed order quantity system or fixed order period system. Inventory control techniques represent the organizational aspect of inventory management and control. Several techniques of inventory control are in use and it depends on the convenience of the firm to adopt any of the techniques. What should be stressed, however, is the need to cover all items of inventory and all stages, i.e. from the stage of receipt from suppliers to the stage of their use. The techniques most commonly used are the following

1. Always Better Control (ABC) classification. 2. High, Medium and Low (HML) classification. 3. Vital, Essential and Designable (VED) classification. 4. Scarce, Difficult and Easy to obtain (SDE). 5. Fast moving, Slow moving and Non moving (FSN) 6. Seasonal Off Seasonal (S-OS) classification. 7. XYZ analysis for finish goods inventory. 8. Government, Ordinary Local and Foreign (GOLF) supplies. 9. Economic Order Quantity (EOQ). 10. Maximum- Minimum system. 11. Two - Bin technique. 12. Material Requirement Planning (MRP). 13. Just in time (JIT).

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ECONOMIC ORDER QUANTITY:One of the inventory management problems to be resolved is how much inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots to in which it has to be purchased on cash replenishment. If the firm is planning production as per schedule. These problems are called order quantity problem and task of the firm is to determine optimum inventory level involves two types of costs: 1. Ordering cost. 2. Carrying cost. The economic order quantity is that inventory level, which minimizes the total of ordering and carrying costs. Ordering costs:The term ordering cost is used in case of raw materials (or supplies) and includes the entire costs of acquiring raw materials. They include costs incurred in the following activities. requisitioning, purchase ordering, transport receiving, inspecting and storing(store placement), ordering cost increase in proportion to the number of orders placed the critical and staff costs, however, dont vary in proportion to the number orders placed, and one view is that so long as they are committed cost they need not to be revoked in computing ordering cost.

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Carrying costs: Cost incurred for maintaining a given level of inventory are called carrying cost, they include storage, insurance, taxes, deterioration and obsolescences. 2*quantity required * ordering cost

EOQ (economic order quantity) = -----------------------------------------------Carrying cost ABC Analysis:ABC analysis is one of widely used inventory control tool. Under this we have to classify materials according to their importance and concentrate more on critical items. Importance of any item arises due to the two factors namely, consumption values and critically in use. Classification of materials according to importance has its basis on the promise vital few and trivial many. The classification based on consumption value is called ABC analysis and the classification based on the critically of the items is called VED analysis (vital essential and desirable).periodical consumption values are used as the basis for VED analysis. ABC is said to denote always better control, the method of classification of material is also known as selective method control. The basis of analyzing the annual consumption cost (or usage cost) goes after the principle vital few and trival many. Items held in the stores can grouped into class A, B and C respectively based on their annual consumption values. It has been found in a large number of organizations that about 10 per cent of the items contribute to 70 per cent of the annual consumption value, 20 per cent of the number of the number of items contributes about 20 per cent of the annual consumption value and the remaining 70 per cent of the items contribute 10 per cent of the annual consumption value. Hence consumption value need to be controlled at the highest level and these are the A items. The control of bottom 70 per cent of the items that contribute only 10 per cent of the annual consumption value, that are denoted as C

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items can be delegated to the lowest decision making levels while, the middle B items can be controlled by the middle levels of personnel. The following figures bring out clearly the concept of ABC analysis. Category value A item B item C item items 10 per cent 10 20 70 per cent of annual Consumption 70 20 10

The advantage of ABC method of inventory control is follows: It becomes possible to concentrate all efforts in areas which need genuine efforts. This method produces better results and involves minimum control. In the case of an items careful attention is paid at every stage i.e., estimates of requirements, purchasing safety stocks, receipts, inspection and issues. A close watch on high consumption items and their progress of replenishment etc., maintained. In the case of C items which are numbers and at the same in expensive are loosely controlled. The items fall under B category may be dispensed within the record keeping system. This will help in saving time, money and labor without endangering production schedule, it is most effective and economical method as it is based on the selective method. It helps in placing the orders, deciding the quantity of purchasing safety stocks etc. Thus saving the organization from the unnecessary stocks outs or surpluses.

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VED Analysis:VED analysis represents classification of items based on critically the analysis classifies the items into 3 groups called vital, essential, desirable vital category encompasses those items for want of which production would come to halt. essential group includes items whose stock out is very desirable group comprises of items which do not cause any immediate loss of production would come is high. Desirable group comprises of items which do not cause any immediate loss of production or their stock out entail nominal expenditure and causes minor disruption for a short duration. HML analysis: HML analysis is the price based analysis. This analysis is generally used for control of spares. The items m under this analysis are classified into 3 groups which are called high, medium, low. To classify, items are listed in the descending order of their unit price. Ex: - the management may decide that all items of unit price above Rs 1000 will be of H category. Those with unit price between Rs 100 to Rs 1000 will be of M category and those having unit price below Rs 100 will be of L category. F-S-N ANALYSIS:F-S-N analysis is based on the consumption figures of the items. The items under this analysis are classified into 3 groups. F-fast moving S-slow moving N-non moving To conduct the analysis the last date of receipt or the date of issue whichever is later taken into account and the period, usually in terms of number of months that has elapsed since the last movement is recorded.

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X-Y-Z ANALYSIS:X-Y-Z analysis is based on value stock on hand. Items whose inventory values are high are called X items those inventory values are low are called Z items and Y items are which have moderate inventory stocks. Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis. S-OS ANALYSIS:S-OS analysis is based on seasonality of the items and it classified the items into 2 groups. S- seasonal OS-off seasonal S-D-E ANALYSIS:S-D-E analysis is based on problems of procurement namely, Non availability Security Longer lead time S-D-E analysis classifies the items into 3 groups called scare, difficult, and easy. The information so developed is then used to decide purchasing strategies. Scare classification comprises of items which are in short supply imported through government agencies. Difficult classification includes those items which are available indigenously but are not easy to produce. Easy classification covers those items which are readily available.

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LEVEL SETTING:In order to have proper control on materials the following levels are set: Re-order level Ordering level Minimum level Maximum level Average stock level Danger level Safety stock level Re-order level:It is the point at which if stock of a particular material in store approaches the storekeeper should initiate the purchase requisition for fresh suppliers of the material. This level is fixed somewhere between the maximum and minimum levels in such a way that the difference of the quantity of the material between the re-ordering level and the minimum level will be sufficient to meet the requirements of production up to the time fresh supply of the material is received. Reorder level can be calculated by applying the following formula:Ordering level=minimum level + consumption during the time required to get fresh delivery.

Another formula given by Weldon in his book cost accounting is follows: Reordering level=maximum consumption X maximum re order level period.

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Ordering level:This is the quantity of stock fixed between the maximum and minimum level of stock. When this level is reached, it becomes the duty of the store-in-charge to replenish the stock within reasonable time. This level is usually a little higher than the minimum level. In order to be prepared for such emergencies as abnormal consumption delay in delivery of new supplies etc.,while fixing this level following points are taken into consideration: Time required for obtained fresh suppliers. Possible unexpected requirements which cannot be avoided. Possible unexpected delays in getting fresh suppliers because of rains war, about unrest etc. Minimum level:Formula level represents the level beyond, which the stock in hand is not allowed to exceed. This is because: If the exceeds this level, it will Involves more investment Requires more space for storages Amount to more wastage obsolescence Involves more carrying cost. Excess stock will increase the cost of storage, thereby increasingly selling cost. Excess stock will involve unnecessary blockade of working capital and prevent its availability for a more profitable use. Stock in excess will prevent the management from taking advantages of price fluctuation and favorable market condition. because of handling, spoilage,

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The fixation of maximum level depends on the following factors: Rate of consumption of the material Money available Time required to obtain deliveries Storage space available Economic order quantity Market conditions, seasonality and price fluctuation Possibility of loss due to deterioration The following for the calculation of maximum stock level given by wheldon is as follows:Maximum stock level = Re-ordering + Re-ordering quality (Minimum consumption X minimum re-ordering period) Average stock level:The average stock is calculated by the following formula. Average stock level = minimum stock level + of re order quantity of minimum stock level + maximum stock level) Danger level:This means levels at which normal issues are made only under specific instructions. The purchases officer will make special arrangements to get the materials which reach at their danger level so that the production may not stop due to storage of material danger level = Average consumption emergency purchase. X maximum re-order period for

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Safety stock level:This level is below the minimum level and represents the stage at which emergency and immediately steps have to be taken for getting the stock replenished.

Future initiation at Bosch for controlling inventory Expand scope of external milk run, Introduce internal milk run, Milk run with customer, Support STL activities, Introduce supper market (FIFO racks). Improve visualization in log. Complexity reduction (LC to SM). Space management. GPS for vehicle tracking GPS (global positioning system) tracking has been tried for external milk run vehicle. Will be extended for all milk run vehicles in 11 quarter 2007. OPERATIONAL DEFINITION OF THE CONCEPT

Inventory Inventory includes stock of raw materials, work-in-process stock, finished goods, and stores and spares.

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Working capital There are two measures of working capital- Gross working capital and Net working capital. Gross working capital is the total of current assets. Net working capital is the difference between total of current assets and the total of current liabilities.

Current assets Current assets refer all the assets, which can be converted into cash within a short span of time i.e. within a year. Like Debtors, Bills receivables, Cash at bank, Marketable securities, etc.

Inventory to working capital It helps to measure the short-term solvency of any company. This ratio indicates the proportion of capital tied up in inventories or stock. This can be calculated by using the formula given below:

Inventory * 100 Working capital

Inventory turnover ratio Inventory turnover ratio or stock turnover ratio is one, which indicates the number of times the stock is turned over during a year, in other words it is a ratio between inventory and cost of goods sold. This can be calculated by using the formula given below:

Cost of goods sold * 100 Average inventory

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Average stock Average stock here means the average of opening stock and closing stock. This can be calculated by using the formula given below:

(Opening stock + Closing stock) / 2

Raw materials turnover ratio: This consists of basic materials that have not yet been committed to production in a manufacturing firm. Raw materials that are purchased from firms to be used in the firms production operations range from Bauxite waiting processing into alumina. The purpose of maintaining raw material inventory is to uncouple the production function from the purchasing function so that delays in shipment of raw materials do not cause production delays. This can be calculated by using the formula given below:

Cost of goods sold (COGS)

Average stock of raw materials

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Finished goods turnover ratio:

These are completed products awaiting sale. The purpose of a finished goods inventory is to uncouple the productions and sale functions so that it no longer is necessary to produce the goods before a sale can occur. This can be calculated by using the formula given below:

Cost of goods sold

Average of finished goods

Inventory storage period (in days)

365

Turnover ratio

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 The inventory turnover shows how rapidly the inventory is turning into receivable through sales. Generally, a high inventory turnover is indicative of good inventory management. A low inventory implies excessive inventory levels than warranted by production and sales activities, or a slow moving or obsolete inventory. A high level of sluggish inventory amounts to unnecessary tie-up of funds, impairment of profit and increased costs. If the obsolete inventories position of the firm. Again, a relatively high inventory turnover should be carefully analyzed. A high inventory turnover may be the result of a very low level of inventory which results in frequent in too many small lot sizes. The situation of frequent stock outs and too many small inventory replacements are costly for the firm. Thus, too high and too low inventory turnover ratios should be investigated further. The components of inventory may help to detect the imbalanced investments in the various inventory components.

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Steps for controlling inventory in Bosch (Naganathpura)

1) BPS in production: The Bosch Production System (BPS) has the aim to achieve standardized, lean, and accelerated processes with "Best in Class" status. It is improving customer satisfaction by producing the highest quality, shortest delivery times, and the lowest costs as well as increasing the satisfaction and motivation of all associates through standardized and transparent processes and high associate involvement in the continuous improvement process. The right part, of the right quality, in the right quantity, at the right moment, in the right place.

2) Milk run: Delivery method for mixed loads from different suppliers. Instead of each of several (say 5) suppliers sending a vehicle every week to meet the weekly needs of a customer, one vehicle visits each supplier on a daily basis and picks up deliveries for that customer. This way, while still five vehicle loads are shipped every week, each vehicle load delivers the full daily requirements of the customer from each supplier. This method gets its name from the dairy industry practice where one tanker collects milk every day from several dairy farmers for delivery to a milk processing firm.

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3) Kanban: Kanban is a Japanese word meaning Instruction card. It is a carrier of information between the customer and the supplier. It contains code number, part name, quantity, suppler (source), and customer (source). It is a method used to control the production and material flow to support the pull system. Manufacturing/assembly is carried out only if the Kanban card is present. The number of Kanban cards is an indicator of inventory levels.

Kanban rules Rule 1: Do not send defective products to the subsequent process Rule 2: The subsequent process comes to withdraw only what is needed Rule 3: Produce only the exact quantity withdraw by the subsequently process Rule 4: Equalize production Rule 5: Kanban is a mean to fine tuning Rule 6: Stabilize and rationalize the process

The Kanban system was created to do the following: 1. 2. 3. Engage in standard operations at any time Give directions based on the actual condition existing in the workplace Prevent addition of any

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If the actual material and Kanban can consistently move together, the following possible: 1. No overproduction will occur 2. Priority in production becomes obvious (When the Kanban for one item piles up, that is the item that must be produced first) 3. Control of actual material becomes easier

4) Fool proofing (Poke yoke) The process of fool proofing (Poka yoke) must be standardized to ensure that stable quality can be assured with a minimum number of man-hours, even when another shift comes in. The fool proofing system we suggest is a means to create device that can discover disorder without the workers having to be attentive to minute details. Methods to be considered in fool proofing include the following: 1) Display method : Light a lamp, making it easier to recognize by color and the like. This is a visual control method that makes it easier to discover disorder with the eyes 2) Jig method : Foreign matter cannot be mounted, or when a mounting miss occurs, nothing can be moved. In this method jigs are adopted to the of discovering disorders 3) Automatic method : The machine stops is a disorder occurs while processing

5) Cycle counting in log: 6) FIFO system in A class items. 7) Reduce the importing material and increasing the local material. 8) Dept. review items DRM.

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Role of cost and control dept. in controlling inventory DRMC: cost dept. will prepare decimator meeting report this is help full for planning the monthly targets. Weekly inventory report: this is prepared for stock target of the week and coverage days of week. Monthly inventory report: this is prepared for stock target of the month and coverage days of month. Consumption report: this report is prepared for to know the requirement of the raw material needed for future.

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RESEARCH DESIGN Effectiveness of inventory management with special reference to BOSCH, Nagnathpura, Bangalore. Title of the study:Effectiveness of Inventory Management. Statement of problem:One of the most important areas in day to day management of the firm is management of inventory. Inventory management is the functional area of finance that covers the efficiency of production of manufacturing firm. It is concerned with management of inventories as well as reduction of cost. The study helps in evaluating efficiency of inventory management of BOSCH. Objective of the study:1. To study the effectiveness of inventory management through various techniques. 2. To know the method of inventory management followed by the company. 3. To analyse the procedures in inventory management. 4. To make a comparative study of effectiveness of inventory management of past 4 years using ratio analysis techniques. 5. To offer suggestions for improving the effectiveness of inventory management.

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Scope of the study:The study conducted on effectiveness of inventory management related to BOSCH AT Bangalore (Nagnathpura plant). The study is based on stock details collected for a period of one month. The scope of the study proposes to study as extensively as possible the effectiveness of inventory management in the company.

Limitation of the study:1. Time Constraints: The period for doing project was short and hence it was not possible to go in detail regarding all the aspects of inventory management. 2. Locality Constraints: The study is undertaken only in Nagnathpura at Bangalore city so the study is limited to Nagnathpura plant. 3. Information: All the information required could not be given by the organization because it was confidential.

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Methodology of the study:To achieve the fore said objectives of the study, both primary as well as secondary data is used. Primary data: Primary data are the data freshly gathered for a specific research project. Which is collected from primary sources are interviews, discussions with managerial staff at BOSCH. Secondary data: it comprises of the data collected from the reports of the company reports generated by the inventory holdings, company annual reports, magazines etc. Tools used for analysis: this project is done Effectiveness of Inventory Management of BOSCH using various tools such as percentages, simple averages, financial ratios etc.

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ABOUT BOSCH

The BOSCH Group is a leading global supplier of technology and services. In the areas of Automotive Technology, Industrial Technology, Consumer goods & Building Technology, some 281,000 associates generated sales of 45 billion euros in fiscal year 2008. The BOSCH Group comprises of Robert Bosch GmbH and its more than 300 subsidiaries and regional companies in over 60 countries. If its sales and services partners are included, then BOSCH is represented in roughly 150 countries. Each year, BOSCH spends nearly three billion Euros for research and development and applies for more than 3000 patents worldwide. With all its products and services, BOSCH enhances quality of life providing solutions which are both innovative and beneficial. The company was setup in Stuttgart in 1886 by Robert BOSCH( 1861-1942) as Workshop for Precision Mechanics and Electrical Engineering. Ninety-two percent of the share capital of Robert BOSCH GmbH is held by Robert BOSCH Stiftung GmbH, a charitable foundation. The majority of the voting rights are held by Robert BOSCH Industrietreuhand KG, an industrial trust. The entrepreneurial ownership functions are carried out by the trust. The remaining shares are held by the BOSCH family and by Robert BOSCH GmbH. The BOSCH slogan Invented for Life is a part of its long tradition which it communicates the Groups core competencies and vision, that include technological leadership, modernity, dynamics, quality and customer orientation.

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COMPANY PROFILE 6. Board of Directors Directors a) Dr. A. Hieronimus, (Chairman) b) Mr. B. Steinruecke, Director c) Mr. B. Muthuraman, Director d) Mr. Prasad Chandran, Director e) Mrs. Renu. S. Karnad, Director f) Dr. B. Bohr, Director g) Mr. V. K. Viswanathan, Managing Director h) Dr. Manfred Duernholz, Joint Managing Director Committees 1. Audit Committee Mrs. Renu. S. Karnad, (Chairperson) Mr. B. Steinruecke Mr. B. Muthuraman Dr. A. Hieronimus Mr. Prasad Chandran

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2. Shareholders'/Investors' Grievance Committee Mr. B. Steinruecke (Chairman) Mrs. Renu. S. Karnad Mr. Prasad Chandran Dr. A. Hieronimus Mr. V. K. Viswanathan

7. Auditors and Bankers

Auditors Price Waterhouse & Co., 5th Floor, Tower "D", The Millenia 1 & 2 Murphy Road, Ulsoor Bangalore 560 008.

Bankers State Bank of India Canara Bank Citibank, N. A. Deutsche Bank AG

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BOSCH LIMITED

Bosch Limited is a well-known and Indias largest Indo-German organization. The company is with the collaboration of German company Bosch Group. BOSCH LIMITED is a member of the Bosch Group, Germany. Founded in 1951, BOSCH LIMITED pioneered the manufacture of automotive spark plugs and diesel fuel injection equipment in India. Access to the international technology of Bosch, with a conscious commitment quality of its more than 11,500 employees has made BOSCH LIMITED the largest manufacturer of diesel fuel injection equipment, auto-electrical, hydraulic gear pumps for tractor applications, electric power tools, packaging machines, Blaupunkt car multimedia systems and security systems. Customers of BOSCH LIMITED: BOSCH LIMITED has a large customer base. The products of BOSCH LIMITED are not only used in India but also are exported and used by many world renowned automobile manufacturing companies.

Customers outside India:

1. General Motors 2. Volkswagen 3. Peugeot 4. Nissan 5. Hatz 6. IVECO 7. FIAT 8. Mercedes Benz 9. Renault

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10. BMW 11. Lombardini USA Inc. 12. DaimlerChrysler

Customers in India:

1. Hyundai 2. Mahindra and Mahindra 3. Tata Motors 4. Maruti Suzuki 5. Ashok Leyland 6. Ford 7. KAMCO Diesel Engines 8. Simpsons Co. Ltd. 9. Kirloskar 10. Cummins India Ltd. 11. Beml 12. VST Tillers Tractors Ltd. 13. Swaraj Mazda 14. L&T John deer 15. Ford Eicher 16. Escorts Ltd. 17. Ford Tempo.

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BOSCH LIMITED, NAGANATHAPURA PLANT:

Naganathapura Plant was established in the year 1989. Among the other Robert Bosch Plants in India, NhP is the 3rd Bosch Plant. The major products being manufactured in NhP Plant are Spark Plugs, Starter Motors, Alternators and some products of Gasoline Systems. The Naganathapura Plant is located about 11 kms away from the Bangalore Plant (BanP). The total area of the Plant is 266,100 m2 (66 acres) and the occupied area is 17.8% . The three divisions, Starter Motors and Generators, Spark Plugs and Gasoline Systems functions from this Plant. The manpower strength of NhP is 1,098.

Milestones:

1989 Setup of plant 1990 Sparkplug and Glow Plug production shifted from BanP to NhP 1992 ISO 9001 Certification

1996 Power tool assembly Manufacturing of Single Cylinder Pump shifted from BanP to NhP 1997 QS 9000 certification Manufacturing of Elements 1998 Export of Starter to Daimler Chrysler via K9

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Manufacturing of Delivery Valve shifted from BanP. 20 millionth Single Cylinder Pump 1999 Car Radio (Blaupunkt) assembly 2000 Manufacturing of Delivery Valve shifted back to BanP. CII Award for Excellent Energy Efficient Unit 2001 Manufacture of Marble cutter 2003 TS 16949 Certification 2004 ISO 14001 Certification Direct On Line Supplier certified from Hero Honda for Spark Plugs. CII Award for Excellent Energy Efficient Unit and Innovative Project 2005 PDM : Housing Project was awarded the 3rd prize in the Six Sigma Contest held by Indian Statistical Institute. 100 ppm Award from Hyundai Motors. 30 millionth PF Pump 2006 Start of supplies of new twin electrode Spark plug to Honda. New 4 dia. Glow plug to Suzuki for common rail project. Bosch/SG has signed agreement with Motogen-Iran as partner for manufacture and sales of Alternator and Starter motors. Start of manufacture of Engine Cooling Fan Module.

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PRODUCT PROFILE Automotive Aftermarket Automotive Aftermarket Division Bosch headquarters for automotive aftermarket business are in Karlsruhe, Germany. Within the Automotive Technology Business Sector, the Automotive Aftermarket Division is responsible for The supply, sales and logistics of automotive parts for service at the vehicle. Diagnostics including workshop equipment, in other words testers, technical information, training and consulting. The Automotive Aftermarket Division, moreover, is responsible for the Bosch Car Service workshop concept, and the global technical after-sales service for Bosch automotive products and systems. The global team comprises some 3,700 people working worldwide in the division, in the regional subsidiaries, and in the agencies abroad. All working to guarantee the highestpossible level of service and quality for our customers in 132 countries round the world, and round the clock.

Areas of operation Worldwide supply of replacement parts and information on Bosch products and systems Worldwide sales of workshop and vehicle accessories Worldwide customer service for Bosch products

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Auto Electrical For close to a hundred years, Robert Bosch GmbH has been a world leader in Auto Electricals. The first batch of high-voltage Magnetos were delivered from Bosch, way back in 1902. This led to the development of high-speed automotive engines. In the years that followed, Bosch pioneered many a breakthrough development that spurred the phenomenal growth of the automotive sector. The thrust on quality, reliability and innovation endeared the Bosch name to millions of customers worldwide. Inspired by its principal's worldwide success, Bosch Ltd. started its auto electricals operation in 1989. Today, Bosch Ltd. manufactures a wide range of Starter Motors and Alternators at its state-of-the-art plant in Nagnathapura, near Bangalore, catering to the ever-increasing demands of the Indian automotive industry. A national field-service network has been set-up to provide comprehensive service support for all Bosch Ltd. products. A strong in-house Auto Electricals R&D set-up, supported by the rich experience and vast infrastructure of Robert Bosch GmbH helps Bosch Ltd. to offer the latest and the best technology to Indian customers. Starter motor Internal-Combustine (IC) engines must be started by separate system because they cannot self-start like electric motor or steam engines. When starting these engines, considerable resistance resulting from compression, piston friction and bearing friction (static friction) must be overcome. Frictional resistance is highest at low temperatures. The starter (also known as the starting motor) must rotate the flywheel at a minimum starting speed overcoming these resistances. It must also continue to support rotation during initial combustion to maintain momentum until the engine can sustain operation. Alternator Motor vehicles need their own efficient, reliable & constantly available source of energy for ignition, lighting, starting motor etc. When the engine is stopped, the battery represents the vehicles energy source, the alternator is the on-board electricity generating plant when the engine is in operation. The task of the alternator is to supply power to all current consuming loads. Alternator output, battery capacity & power demand of the loads must be matched to each other as ideally as possible so that the entire system is reliable & trouble-free in operation. The requirements of an alternator are: Supplying all connected loads with direct current. Additional power reserves for the fast charging of the battery even when continuous loads are switched on and when the engine is only idling. Keeping the alternator voltage constant over the entire engine speed range. As maintenance-free as possible in operation. Rugged construction to withstand all external loading caused by vibration, changes in temperature, dirt, damp, fuel & lubricants.

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Low weight & compact dimensions. Low noise. Long life.

Function: The basis for the generation of electricity is formed by electromagnetic induction i.e. when an electric conductor cuts through the lines of force of a magnetic field, a voltage is induced in the conductor. It is immaterial whether the magnetic field remains stationary while the conductor moves, or vice versa. The generation of three phase current in alternator takes place in conjunction with a rotary motion. There are three identical, independent windings which are arranged at 120 from each other. According to the law of induction, as the rotor rotates, sinusoidal alternating voltages & alternating currents of identical magnitude & frequency are generated in the windings. The result is a constantly recurring rotation. The resulting three phase alternating current known as three phase current is rectified through semiconductor diodes since it cannot be supplied directly to the electrical loads or the battery.

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TABLES AND GRAPHS (For Bosch India)

1. TABLE SHOWING RATIO OF RAM MATERIAL TO TOTAL INVENTORY:

Ratio= (Closing value of RM/Closing stock)*100 Year 2006 2007 2008 2009 RM to Total Inventory 37.59% 30.28% 32.35% 27.77%

Analysis The above table shows the percentage of raw material in the closing inventory. It is expressed as a percentage over total closing inventory. Ram material in total inventory has decreased almost 6% from 2006 to 2008 and almost 4% from 2008 to 2009 which means there is a high movement of raw material and it is not blocked.

Inference It can be inferred from the above analysis that there is no complete blockage of the raw material in the total closing inventory though there are slight ups and downs. Raw material is very essential for the production, so it plays a very important part in the inventory. Raw material enables the complete flow of production and the movement definitely catalysis the production.

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GRAPH SHOWING RAW MATERIAL TO TOTAL INVENTORY RATIO:

RM to Total Inventory
40.00%

30.00%

20.00%

10.00%

0.00% 2006 2007 2008 2009

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2. TABLE SHOWING RATIO OF WORK IN PROGRESS TO TOTAL INVENTORY:

Ratio= (Closing value of WIP/Closing stock)*100

Year 2006 2007 2008 2009

WIP to Total Inventory 15.16% 14.55% 17.14% 15.09%

Analysis The above table shows the percentage of work in progress to the closing inventory. It is expressed as a percentage over total closing inventory.

Inference The above table is showing a minimal decrease in percentage of WIP in total inventory. From this we can say that the WIP is readily converted into finished goods except in the year 2008-09 where there is an in value which could be attributed to value additions in the product as also to economic recession. Excluding that there is an efficient conversion of WIP into finished goods.

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GRAPH SHOWING RATIO TO TOTAL INVENTORY:

WIP to Total Inventory

18.00% 17.00% 16.00% 15.00% 14.00% 13.00% 2006 2007 2008 2009

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3. TBLE SHOWING INVENTORY TURNOVER RATIO: Inventory turnover ratio= Net sales/ Average Inventory Average inventory= Opening Stock + Closing Stock/ 2 Year Inventory turnover ratio 2006 2007 2008 2009 8.16% 8.66% 8.79% 8.64%

Analysis: The above table is the ratio between the Net Sales of the particular year to the Average inventory. Average inventory is the sum of the Opening and Closing value of stock in a particular year divided by two.

Inference: Inventory turnover ratio from 2006 to 2008 has gradually increased but due to some inventory measures slight difference in 2009 but over all average is increased Therefore from above table we can see a high inventory turnover ratio which indicates efficient management of inventory because more frequently the stocks are sold.

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GRAPH SHOWING INVENTORY TURNOVER RATIO:

Inventory turn over ratio

8.80% 8.70% 8.60% 8.50% 8.40% 8.30% 8.20% 8.10% 8.00% 2006 2007 2008 2009

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4. TABLE SHOWING INVENTORY CONVERSION PERIOD:

Inventory conversion period= 365 days/ Inventory Turnover Ratio

Year

Inventory conversion period(in days)

2006 2007 2008 2009

42 42 41 42

Analysis: The above table is a ratio between the numbers of days in the year to the Inventory turnover ratio. Inventory Turnover Ratio is the ratio between the Net Sales and the Average Inventory.

Inference The above table shows the ratio signifying the time taken to convert the inventory into cash or revenue, by way of sales.

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GRAPH SHOWING INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD

42

41

40 2006 2007 2008 2009

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5. TABLE SHOWING RATIO OF FINISHED GOODS TO TOTAL INVENTORY:

Ratio= (Closing value of FG/Closing stock)*100 Year 2006 2007 2008 2009 FG to total inventory 11.47% 19.76% 16.55% 21.17%

Analysis The above table shows the percentage of finished goods in the closing inventory. It is expressed as a percentage over total closing inventory.

Inference The above table shows a increase in the percentage of finished goods in the year un 200708 from 2006-07 and from 2008-09 to 2009-10. But there is a decrease in 2008-09 from 2007-08 due to recession. It shows that the effectiveness in storage of finished goods and its movement.

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GRAPH SHOWING FINISHED GOODS TO TOTAL INVENTORY:

25.00%

FG to total inventory

20.00%

15.00%

10.00%

5.00%

0.00%

2006

2007

2008

2009

NOTE: - Apart from the above, inventory includes trade goods, stores and spares and loose tools the percentages of which is shown in the following table. YEAR PERCENTAGE CONTRIBUTION OF THE REMAINING INVENTORY FORM 2006 2007 2008 2009 35.78 35.41 33.96 35.97

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6. TABLE SHOWING COVERAGE DAYS ANALYSIS OF RAW MATERIALS [as per calculations from Annual Report]

Coverage Days (for raw materials) = (Closing Stock of Raw materials/Net Sales)*365

YEAR 2006 2007 2008 2009

COVERAGE DAYS 18 12 13 12

Analysis The above table shows the coverage days of raw materials in the said four years. Coverage days, in the context of raw materials, are the number of days of production that can be made in with the stock present in the organisation. The above table shows the coverage days of raw materials to be the lowest in the year 2006 at 18 days.

Inference A fall in the coverage days is seen in 2007 signifies that there is a good inventory control system in the company. There is a rise in the coverage days in 2008 which shows decrease in the rate of production. The inventory movement of raw materials is slow in 2008 which is signified by the increase in the coverage days in 2008.

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GRAPH SHOWING COVERAGE DAYS OF RAW MATERIAL:

18 18 16 14 12 10 8 6 4 2 0 2006 2007 2008 COVERAGE DAYS 2009 12 13 12

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7. TABLE SHOWING COVERAGE DAYS ANALYSIS OF FINISHED GOODS [as per calculations from Annual Report]

Coverage Days (For Finished Goods) = (Closing Stock of finished goods/Net Sales)*365 YEAR 2006 2007 2008 2009 COVERAGE DAYS 6 8 7 9

ANALYSIS The above table shows the coverage days of finished goods. Coverage days, in this context, mean the number of days of sales that could be carried out with respect to the stock of finished goods. The coverage days are the lowest in the year 2006 at 6 days. After a variation in 2007 and 2008 the coverage days is the highest in 2009 at 9 days, which in comparison to 2006, 2007 and 2008 means the movement of finished goods is relatively slower.

INFERENCE The coverage days of 2009 are a reflection of the movement of finished goods in 2008. Since the movement of goods in 2008 is slower due to the recession, there is a increase in the coverage days in 2009.

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GRAPH SHOWING COVERAGE DAYS ANALYSIS OF FINISHED GOODS

COVERAGE DAYS
9 8 7 COVERAGE DAYS 6 5 4 3 2 1 0 COVERAGE DAYS 2006 6 2007 8 2008 7 2009 9

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8. TABLE SHOWING WIP TURNOVER RATIO:

WIP Turnover Ratio= Factory Cost/ Average Stock of RM Average stock of RM= Opening Stock + Closing Stock/ 2 Year Factory cost (in TINR) 2006 2007 2008 2009 3,178,895 3,511,178 3,773,723 3,599,925 Average stock of RM (in TINR) 1,578,579 1,678,579 1,560,542 1,592,067 2.01% 2.09% 2.41% 2.26% Ratio

Analysis The above table shows the WIP Turnover ratio of the said four years. It is a ratio between the Factory Cost and the Average Stock of Raw Materials. Average Stock of raw materials is given by sum of Opening and Closing values of stock divided by two.

Inference If the WIP Turnover Ratio of the company is seen to be increasing over the said four years which signifies that the company is efficiently converting the WIP into Finished Goods.

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GRAPH SHOWING WIP TURNOVER RATIO:

WIP Turnover Ratio

2.50% 2.40% 2.30% 2.20% 2.10% 2.00% 1.90% 1.80%

2006

2007

2008

2009

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9. TABLE SHOWING FINISHED GOODS TURNOVER RATIO:

FG Turnover Ratio= Cost of goods sold/ Average Stock of FG Average stock of FG= Opening Stock + Closing Stock/ 2

Years

Cost of goods sold (in TINR)

Average stock of FG (in TINR)

Ratio

2006 2007 2008 2009 Analysis:-

37,836,839 42,796,321 45,416,488 47,497,740

569,119 767,163 932,627 1,052,482

66.48% 55.78% 48.69% 45.12%

The above table shows the Finished Goods Turnover ratio of the said four years. It is a ratio between the Cost of Goods Sold and the Average Stock of Finished Goods. Average Stock is given by sum of Opening and Closing values of stock divided by two.

Inference: If the Finished Goods Turnover Ratio is decreasing it is said to be efficiently applying the JIT system. It signifies that the finished goods are being produced as per the demand requirements of the market.

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GRAPH SHOWING FINISHED GOODS TURNOVER RATIO:

FG Turnover Ratio
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

2006

2007

2008

2009

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10. TABLE SHOWING RATIO OF INVENTORY TO CURRENT ASSETS:

Inventory to Current assets ratio= (Inventory / Current Assets)*100

Year

Inventory to Current assets (in %age)

2006 2007 2008 2009

61.01 50.24 35.40 38.34

Analysis The above table i.e. inventory to current assets ratio indicates the relationship between the inventory and current assets. It shows the percentage of inventory to current assets.

Inference This ratio helps the organization in deciding the current assets policy which also effects the liquidity position of the organization. In the graph we can see that there is a minimal decrease of inventory in current assets which means current assets is not blocked and is used for effective purpose.

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GRAPH SHOWING RATIO OF INVENTORY TO CURRENT ASSETS:

INVENTORY TO CURRENT ASSETS

70 Inventory to Current Assets Ratio 60 50 40 30 20 10 0 INVENTORY TO CURRENT ASSETS 2006 61.01 2007 50.24 2008 35.4 2009 38.34

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11. TABLE SHOWING RATIO OF INVENTORY TO TOTAL ASSETS:

Year

Inventory to Total assets (in %)

2006 2007 2008 2009

36.81 30.10 23.58 19.52

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Inventory to Total assets (in %)

40 35 30 25 20 15 10 5 0 2006 2007 2008 2009

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12. TABLE SHOWING RATIO OF INVENTORY TO WORKING CAPITAL RATIO:

Year 2006 2007 2008 2009

Inventory to Working Capital Ratio 57.93 50.73 34.29 40.65

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GRAPH SHOWING INVENTORY TO WORKING CAPITAL RATIO:

Inventory to Working Capital Ratio

60 50 40 30 20 10 0 2006 2007 2008 2009

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13.TABLE SHOWING DEBOTRS TURNOVER RATIO Year 2006 2007 2008 2009 Debtors Turnover Ratio 8.35 7.69 7.06 7.40

Debtors Turnover Ratio

8.5 8 7.5 7 6.5 6 2006 2007 Debtors Turnover Ratio 2008 2009

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Year 2006 2007 2008 2009

Debt Collection Period (in days) 43 47 52 49

Debt Collection Period (in days)

60 40 20 0 2006 2007 Debt Collection Period (in days) 2008 2009

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Year 2006 2007 2008 2009

Creditors Turnover Ratio 4.32 4.04 4.16 4.11

Creditors Turnover Ratio

4.35 4.3 4.25 4.2 4.15 4.1 4.05 4 3.95 3.9 2006 2007 2008 2009

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Year 2006 2007 2008 2009

Average Collection Period 84 83 88 89

Average Collection Period

90 89 88 87 86 85 84 83 82 81 80 2006 2007 2008 2009 Average Collection Period

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FINDINGS: 1) Entire organisation is computerised. 2) The method of recording movement of inventory followed by the organisation is FIFO method. 3) A material planning is done based on orders obtained from different customers. 4) The received materials are inspected as per standard plan. 5) The inventory is classified into four classes. 6) Physical verification of raw materials of all value in holding stores is conducted by a method called cycle counting. 7) The class A inventory has around 118 parts and the entire lot is cycle counted twice a year 8) Class B constitutes about 215 parts and the entire lot is cycle counted twice a year 9) 9% of the Class C inventory and 1%/ of Class D inventory is cycle counted once a year. 10) All materials are stored in right condition and respective locations- LOG-1, LOG-2, LOG-3. 11) The organisation has an efficient management of inventory. 12) The inventory is shifted from the stores to the shop on a Milk-run system. 13) In case of defective goods, if the defect is quality wise it is sent back to the inbound area (LOG-1) and in case of defective product it is dismantled and used for development of new products.

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RECOMMENDATIONS 1. Technical audit should be done on raw materials to see that it is not over stocked and under stocked.

2. It should use various scientific inventory controls like JIT and Scarce Difficult and Easy to obtain methods.

3. The organisation should not possess a high amount of inventory for long period of time as it is not usually good for a business because of inventory storage obsolescence and spoilage costs.

4. The organisation can adopt techniques such as just in time inventory which help to minimise inventory levels & thereby inventory carrying costs / avoid obsolescence, etc.

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BIBLIOGRAPHY

Introduction to inventory Company Profile

: :

www.google.com www.boschindia.com : www.scribd.com

Introduction to MICO Bosch Product Profile Tables and Graphs : :

www.boschindia.com Annual Reports of Bosch India Of 2006, 2007, 2008 and 2009

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