A PROJECT REPORT ON INVENTORY MANAGEMENT ACROSS THE SUPPLY CHAIN THROUGH KANBAN SYSTEM BY DHAVAL A. MUNDADA REG. NO.

200722210

SYMBIOSIS CENTRE FOR DISTANCE LEARNING BATCH 2007-08

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. Dhaval Anand Mundada was an employee of PMP Components Pvt Ltd during the period of May2003 May2005. He was the core team member of implementation of KANBAN system carried out in PMP. We have no objection for him to carry out this implementation as a project work titled Inventory Management across the Supply Chain through KANBAN System in our organization & for submitting the same to the Director, SCDL as a part of fulfillment of the PGDSCM Program. We wish him all the success.

Seal of the company

For PMP Components Pvt. Ltd.,

Mr. Jayen Nair GM-Works (Satara) Place: Satara Date: 25/03/2009

DECLARATION BY LEARNER

This is to declare that I have carried out this project work myself in part fulfillment of the PGDSCM Program of SCDL.

The work is original, has not been copied from anywhere else and has not been submitted to any other University/Institute for an award of any degree/diploma.

Date: Place:

Signature: Name: Dhaval Anand Mundada

CERTIFICATE OF SUPERVISOR

Certified that the work incorporated in this Project Report Inventory Management across the Supply Chain through KANBAN System submitted by Mr. Dhaval Anand Mundada is his original work and completed under my supervision. Material obtained from other sources has been duly acknowledged in the project report.

Date: Place:

Signature of Guide

TABLE OF CONTENTS Chapters Acknowledgement 1. Introduction----------------------------------------------- 01 2. Objective & Scope--------------------------------------- 04 3. Limitations------------------------------------------------ 05 4. Theoretical Perspective---------------------------------- 07 5. Methodology & Procedure of Work--------------------09 6. Analysis of Data------------------------------------------ 17 7. Findings, Inferences & Recommendations------------ 21 8. Conclusion------------------------------------------------- 28 9. Summary of the Project---------------------------------- 29 Annexures ----------------------------------------------------- 30 Page No.

ACKNOWLEDGEMENT I find myself fully engulfed with immense pleasure in expressing my sincere and profound gratitude to PMP Components Pvt Ltd. for giving me an opportunity to carry out this project. I am very grateful to Mr. Jayen Nayar GM (Works) for having shown confidence in us to assign this project. I express my sincere thanks to Mr. P. M. Dhole Asst. GM, Supply chain for being helpful and co-operative throughout the project. I am also thankful to all staff members for their kind co-operation. I take this opportunity to express my deep sense of gratitude & respect to my guide Mr. Prashant Chandak without whose constant encouragement, it would not have been possible to complete this work. I am also thankful to him for being highly co-operative & approachable.

Mr. Dhaval Mundada Course:-PGDSCM Reg. No.: 200722210

CHAPTER-1 INTRODUCTION The need for quality supply chain management where every action in the customer delivery process adds customer value & where quality that forever improves, must be matched by value for money solutions. It is this understanding that has driven the PMP group; to forever emerge as a customer value provider in the business of quality Alternators. Highest importance is given to the customer relationship and service. PMP tries to understand its customers and delivers a product exactly as per customers needs. PMP is part of US $ 400 million Piramal group headquartered at Mumbai. This is one of the most progressive and reputed business houses in India. The highest corporate governance standards are followed in conducting day-to-day business.

PMP has been in the business of auto-electrical components since 1962. There are two manufacturing plants located at Mumbai and Satara. Both the plants have ISO 9001 accreditation. PMP Components Pvt. Ltd., based in Satara, spread over 45000 sq. ft. of built up area and has been in production since 1984. PMP is manufacturing and marketing Alternators, Starter Motors, and D.C. motors, Horns, Switches, Relays and Voltage Regulators for Vehicles manufactured in India and various countries abroad. The companys major business comes from reputed OEM customers in India. Company also had a significant presence in the After Market in Europe, and USA. Almost 150 professionals including designers, engineer technicians, skilled & semiskilled workers perform in unison at PMP under the stewardship of its engineer founder CEO Mr. S.N.Somani, to ensure that quality & commitment have become part of the fabric, which drapes every aspect of PMPs working. OEM Customers Segment Customers Maruti Udyog Ltd. Cars TATA Motors - Indica Hindustan Motors Ltd. General Motors FORD

Light Commercial Vehicles Heavy

TATA Motors Bajaj Tempo Ltd. Mahindra & Mahindra Ltd.

Commercial TATA Motors Vehicles Ashok Leyland Ltd. Mahindra & Mahindra Ltd Eicher (good earth) Tractors Ltd. Tractors L & T (John Deere) Tractors Ltd. Gujarat Mahindra Tractor Ltd. SAME DEUTZ HMT Ltd. New Holland Bajaj Auto Ltd. Bajaj Temp Ltd. M&M Champion Greaves Ltd. Engine Kirloskar Oil Engines Ltd. Mahindra & Mahindra Eicher Ltd.

3 Wheelers

PMP is exporting products to following countries: USA, Canada, Australia, UK, Germany, France, Italy, Spain, Denmark, Finland, Singapore, Belgium, Holland, Dubai, Sri Lanka & Taiwan.

CHAPTER-2 OBJECTIVE & SCOPE

To achieve a highly efficient & effective inventory system, which developed into an optimum inventory environment leading to global competitiveness. Following are the objectives while implementing KANBAN system: To minimize the inventory holding stock

 To remove mismatch of quantities required to produce alternators. To prevent stock out of items. JIT Purchasing( eliminating waste in the purchase process, at the suppliers end & in the purchased inventory) Quality at source To keep pace with changing market conditions. Continuous improvement. The project was carried out to remove excessive inventory & streamline & increase the production to fulfill the market demand in JIT. This project aims at the benefits of KANBAN system while reducing the inventory & increasing production, improving quality in radical manner. This helped company to change its strategy & policies so that it can improve its services & the satisfaction level of customers. This will enhance its brand loyalty which further helps to retain its customer base as well as increase its market share.

CHAPTER-3 LIMITATIONS PMP is one of the major vendors of Mahindra & Mahindra, Kandivali. The major order of alternators comes from M&M. (around 40-45%). Also PMP is the single source for alternators for their tractor division & light commercial vehicle division. An err in supply of alternators leads to stoppage of Mahindras line & will be placed PMP in black listed vendor list.

To achieve a highly efficient & effective production system through customer delivery with quality parts, PMP made a lot of investment in inventory to ensure timely dispatch of alternators at customers end. Due to the changing scenario in market demand, PMPs inventory piled up leads to increased inventory holding costs. Also due to mismatch in stock figures for some items, inventory held up by the company was in terms of rupees of average of 45 days sales, which could not converted a single alternator & which eventually leads to loss of sales. Over buying results due to errors in the estimation of the quantity & also non realization of anticipated sales. Also the suppliers minimum quantity condition was yet another cause of overbuying. All these factors lead to production losses due to stoppage of proper material & therefore failure to match the delivery schedule. And to make up these losses PMP ran 3rd shift many times increasing overhead costs. As alternators are made of stator, rotor, bearings, voltage regulators, brushes, slip rings, heat sink, fan, end heads ( which are basically made up of steel, copper alloy, aluminum alloy, silicon diodes comes into A &B class items), they are very costly. Keeping these high valuable sub parts without converting into alternator leads to huge inventory holding costs. Also environmental factor comes in the picture for the steel components & sheet metal components. Therefore the main problem is to reduce the inventory, to prevent loss of sale, implement JIT purchasing & to remove waste from supply chain management. For sorting out the above problem we decided to go through KANBAN System. In this project we are covering solution only for supply chain management. Also JIT & KANBAN for production cycle is beyond the scope of work of this project.

CHAPTER-4 THEOROTICAL PERSPECTIVE PMP has a wide range of alternator models which were produced by either batch production or custom oriented job order production. So we decided to go for a Japanese proven system i.e. JIT purchasing through KANBAN system which suits to our

environment. We also keen to implement JIT manufacturing simultaneously to meet our monthly target. By eliminating all waste & seeking continuous improvement, we aim at creating a manufacturing system that is responsive to market needs. The characteristics of JIT purchasing are as follows: Prevalence of a multi-tier structure of dedicated, partially & fully owned ancillary suppliers. Extension of KANBAN information system to include the suppliers Communication of smoothed production plans to the suppliers, to ensure readiness to deliver as per the production plan. Development of high quality suppliers, who have eliminated the need for incoming inspection at the manufacturers site. High degree of cooperation & trust between the suppliers & the manufacturers, resulting in development of long term relationships Wide spread use of a single source policy which has eliminated problems of excessive multi-sourcing. Innovative part packaging & material handling systems. PMP rely on 100% on purchased part & therefore want to make effective purchasing to achieve the following things: Controlling the inventory levels Drastic reduction in buffer inventories Reduction of storage space Reduction of material handling Reduction of wasted/damaged materials. Criteria for selection of KANBAN system :-

KANBAN system used by Japanese people to meet the precise demands of customers for different models with minimum delay & had been proven manufacturing philosophy used by them. It not only achieved a greater quality product but also achieved continuous improvement in the manufacturing environment. M&M & other OEMs adapted this system & achieved improved results in reducing inventory & increasing level of customer service in their organizations. So PMP decided to go for KANBAN system. Criteria for Part Selection & alternator models:Bill Of Material of an alternator is made of around 80-85 items including A & B class items like copper wire, aluminum castings, ball bearings, diode, machined steel component & electronic regulators & C class items like all types of hardware. (washers, nut, bolts, spacer etc.) Out of which more or less hardware items are common to different model types of alternators. Also 7022 model of alternator constitutes of sale of 40% of annual sales of all alternator models. Hence we decided to select BOM of 7022 model first for the implementation of KANBAN.

CHAPTER-5

METHODOLOGY & PROCEDURE OF WORK Methodology:What is KANBAN :-

KANBAN (Japanese) : KAN-Card & BAN- Signal i.e. Card signal or visual Record. In the modern lean terminology, a KANBAN is a visual information system established to maintain the discipline of a JIT system on the shop floor. A signal that authorizes production. A signal that to understand everyone i.e. from worker to officer. The three main principles of JIT are: Takt Pull Flow----Information (to material people) ------KANABAN signaling.

All the activity associated with any replenishment system is non value added. The target for improvement should be to eliminate or stream line each activity associated with the replenishment system. A little inventory leads to the issues of overproduction, tying up the resources, deterioration or damage in storage & handling, wasted space, storage costs, delay & long lead time & hidden problems like production imbalance, late supplier deliveries, defects, downtime, long setups. By using KANBAN signaling the response time have been reduced drastically proven by Japanese people. It is based on pull system i.e. work releases are authorized based upon the actual customer order status that means the status of downstream operations dictate the production requirements for upstream operations.

Prerequisites of KANBAN Pull system:For a pull system to perform effectively, following should be in place:Quick changeovers, cellular manufacturing, one piece flow, low variability, reliable process & stable, flat demand. If these are not done first, implementing KANBAN pull will force these to take place. How a KANBAN system does works across supply chain:Two bin card system : - This system used when WIP cannot be handed from one process to the next, thus necessitating an inbound stock point & outbound stock point for processing stations. This system utilized in the environment of high complexity parts. In this system 2 bins are kept at production bay, stores & at suppliers end. When one bin is empty, then it signals to the upstream operations & ultimately to suppliers to fill up that bin within lead time. Therefore all operations are running smoothly at both end i.e. at manufacturers & suppliers. There is no delay in the order, no delay in the production. KANBAN size calculations:Establish average monthly consumption of all items (A, B & C class items). Then establish average daily consumption of all items. Decide the packing size of all items considering total lead time required to bring those quantities from supplier end. Establish design control level & no. of KANBAN for ship lot. Also establish total KANBAN issued across the supply chain & operating control level of each item. No. of authorized KANBAN cards/containers controls the amount of inventory in the system at any given time. The no. of cards/containers in the system directly impacts the WIP inventory & safety stock. Material spends some time in transit, actual processing,

waiting in queue, waiting in storage location. So at any given time in the system, containers carrying material are in one of the above stages. The key to determining number of cards/containers is estimating the average lead time needed to produce a container of parts. Number of cards = (Avg. demand during lead time + safety stock)/ KANBAN size (size of the container) Where Lead time is the function of the processing time per container at the upstream supplier station & the waiting time at the down stream production process & for material handling. Procedure of work Obtaining a clear understanding of KANBAN & what is involved in implementing KANBAN by attending training programs & visiting implementing companies. Made training schedule for the employees, workers & suppliers. Working out an implementation strategy tailored to the needs of the business & with quantifiable objectives & time scales. (nearly 6 months to 1 year horizon period) Identification of C class items & their suppliers We calculated average monthly consumption of all items (A, B & C class items) in bill of materials of 7022 & 7803 first. Then we broke down the quantities into average daily consumption.

We put present shipping lot against each items of BOM & present replenishment interval also. From the above we decided new ship lot i.e. KANBAN quantity & calculated new replenishment interval. We calculated vendor response time (VRT) i.e. the time required for vendor for supplies to PMP & transit time(TT) i.e. time required for transporters to pick up & deliver the supplies. Then total lead time (TLT), the addition of VRT & TT had been calculated. Finally lead time factor (LTF) had been calculated by adding TLT, internal lead time (ILT) i.e. the time required for receiving, inspection & issuing on the line & safety stock (SS) level. Then established no. of KANBANs in the system by dividing design control level to the container quantity or KANABAN quantity. Finally we arrived at operating control level of all items by multiplying KANBAN quantity to total KANBAN s issued across the system. We took the suppliers in confidence & gave training about the whole KANBAN concept. Meanwhile we printed KANBAN cards & put it on plastic containers. Containers filled up with KANBAN quantity from the current inventory of the stores so that to remove mismatch in the system. Initially bins which were emptied, generates KANBAN signal to the suppliers. Suppliers made deliveries against KANBAN signal. When the production started, 2 bins are kept on the shop floor. Once the bin was emptied, it returned back to stores. Stores generated KANBAN signal to the supplier & supplier ensured the delivery within lead time. In this way the KANBAN cycle started.

On the next page, a sample sheet given for KANBAN calculations for few items of 7022 model.

Sample data for Vendor system KANBAN Design

Vendor Location Vendor Name Usage Point BOM Level Part Name

Part No.

1 2 3 4 5 6 7 8 9

DEH ASSLY ROTOR ASSLY. Alternator Assembly COIL ASSLY SREH Assembly SREH Assembly DEH Assembly ST.STACK ASSLY ALU.CASTING

70930503 70250206 70250104 10007 70220605 78030605 70220504 80107 50003

BEARING RETAINER ROTOR POLE M/C SPACER 23 SWG WIRE SREH CASTING SREH CASTING DEH CASTING POLY.FILM 10MIL * 43 MM ALU.INGOT
Present Shipping Lot Primary Packing

UOM

3 2 2 2 3 2 4 3 2

EA EA M Ea Ea Ea Ea Ea Ea

AUTOMEK PRODUCTS ARIHANT IND SUNEETUL PRECISION WIRE ISHAAN ENGG SATARA TECHNOCRATE ISHAAN ENGG GUJARAT POLY GANGAJAMUNA

SATARA A'NAGAR SATARA SILVASA VAPI SATARA VAPI SILVASA SILVASA

Average Daily Consumption

New Shiplot

Present RI

Part Name

Part No.

New RI

1 2 3 4 5 6 7 8 9

70930503 70250206 70250104 10007 70220605 78030605 70220504 80107 50003

BEARING RETAINER ROTOR POLE M/C SPACER 23 SWG WIRE SREH CASTING SREH CASTING DEH CASTING POLY.FILM 10MIL * 43 MM ALU.INGOT

300 800 600 55 400 60 400 0.5 325

100 50 100 500 500 500 100 100 12

5000 800 5000 5000 5000 5000 200 250 200

TLT (Total lead time)

17 1 8 91 13 83 1 500 1
time)ILT(Internal lead

500 800 5000 1000 1000 1000 200 100 100

1.67 1.00 8.33 18.18 2.50 16.67 0.50 200.00 0.31

DESIGN CONTROL LEVEL

TT (Transit Time)

SS(safety stock)

VRT(Vendor Response Time)

LTF(Lead time factor)

1 2 3 4 5 6 7 8 9

70930503 70250206 70250104 10007 70220605 78030605 70220504 80107 50003

Part No.

BEARING RETAINER ROTOR POLE M/C SPACER 23 SWG WIRE SREH CASTING SREH CASTING DEH CASTING POLY.FILM 10MIL * 43 MM ALU.INGOT
Part Name

1 2 5 2 2 2 0.5 1 1
NO. OF KANBAS FOR SHIP LOT

1 1 1 1 1 1 0.5 0.5 0.5

NO OF KANBANS FOR CONTROL

2 3 6 3 3 3 1 2 2
TOTAL KANBANS ISSUED

1 1 1 1 1 1 0.5 0.5 0.5

OPERATING CONTROL LEVEL

5 2 5 2 2 2 1 1 1

10.0 7.0 20.0 24.2 8.5 22.7 3.0 203.0 3.3

Card Sr. No.

500 800 5000 1000 1000 1000 100 100 100

Storage Rack No.

KANBAN QTY

Part Name

Part No.

2900 5600 12200 1330 3400 1360 1200 101.5 1075

Shelf No.

1 2 3 4 5 6 7 8 9

70930503 70250206 70250104 10007 70220605 78030605 70220504 80107 50003

BEARING RETAINER ROTOR POLE M/C SPACER 23 SWG WIRE SREH CASTING SREH CASTING DEH CASTING POLY.FILM 10MIL * 43 MM ALU.INGOT

1.00 1.00 1.00 1.00 1.00 1.00 2.00 1.00 1.00

5.8 7 2.44 1.33 3.4 1.36 12 1.015 10.75

LEVEL

6 7 3 2 4 2 12 2 11

3000 5600 15000 2000 4000 2000 1200 200 1100

100001 100005 100010 100012 100016 100017 100026 100044 100063

SR SR SR 3 3 3 EW A GD SR 4

2 3 3 5 6, 11B 9 1 1 A

Flow chart for the stages of Implementation of KANBAN system Obtaining a clear understanding of KANBAN & top management's approval for the implementation

Training on KANABAN for employees, workers & suppliers

Establish average monthly consumption of all BOM items of 7022 alternator model Draw the average daily consumption of each item

Put the primary packing size & present shipping lot Present replenishment interval (RI) = present shipping lot / avg daily consumption Calculate new RI=New ship lot /Avg daily consumption Establish VRT (vendor response time), TT (Transit Time), TLT (Total Lead Time),ILT (Internal Lead Time),SS (Safety Stock) from past experience

Calculate lead time factor (LTF) by adding TLT, ILT, SS & new RI

Continued on next page New ship lot = KANBAN Quantity

Calculate Design control level=LTF * Avg daily consumption Calculate no. of KANBANs for ship lot = new ship lot / KANBAN qty Calculate no. of KANBANs for control level =Design control level / KANBAN qty

Calculate Operating control level (OCL) = Total no. of KANBAN * KANBAN qty

Min Inventory valuation = Cost/unit * Also bin generate the & floor, bins Once KANBAN on shopput on return Print storeisQty sticker signal to vendor KANBAN empty to ensure the & in return put in in stores back to storeon Shopof& store2giveqty Print Inventory valuation= Cost/unit * Max KANBAN cardsfloor & the Bin, Place 2 bins supply KANBAN within Vendors anotherlead time. Repeat the end KANBAN post & Supplierscycle. OCL KANBAN bin & 2 at

CHAPTER-6 ANALYSIS OF DATA

During implementation of KANBAN we focused on the most running model of alternator supplied by us i.e.7022 to OEMs. Most of the hardware items covered in 7022 BOM is common to other alternator models. These are the C class items for which production line sometime stopped due to stock outs of materials & leads to production loss & sales loss. To prevent out this, we started to work on C class items. PMP have MRP II environment for its repetitive manufacture of different models of alternators. MRP II provides a comprehensive framework for integrative planning & control of manufacturing resources & generally includes: Resources requirement planning Production planning Master Production Schedule Materials Requirement Planning Capacity Requirement Planning Shop Loading & shop floor control Inventory Control

All these functions had been done by computer & to read, respond & manage these reports, MRP II requires no. of planners. MRP II is forward looking& it replenished the material if it is predicted that more is needed. In PMP marketing people from Mumbai office forwards the next months internal purchase order (IPO) of alternators which includes the order from export & OEM customers to Satara office.

Then Planning officer run MRP for one month production considering the production plan, bill of material & availability of the material. Material requirement generated & sent material schedule to the approved vendors. Day to day production planning has been done by planning officer & according to priority based on the inputs from Marketing people. The details of customer wise production made & dispatch details has been informed to Marketing people to enable them to make next months IPO. This system is not full proof as some human errors occurred always while doing the above steps. Some of the reasons are: 1) As the system stock did not match with physical stock so every time we have to take physical stock before sending the schedule which is ideally not possible in each case. 2) Any changes in planning schedule, supplier found hard to switchover the respective supply of material in minimum time. 3) If any order is pending or cancelled, then inventory piled up for that alternator model or order. 4) Supplier sent the scheduled material in a single delivery to reduce the freight cost, not in staggered delivery. 5) Due to mismatch in synchronization & avoid sale loss, PMP run 3rd shift many times in a month which ultimately increases overhead costs. 6) It may happen sometime that production of not required models has been taken place which blocked resources & eventually kept in finished good store till its sales. 7) For the above reason overbuying took place which piled up inventory also. 8) Due to changes in design, some items become obsolete & lying as non-moving items. 9) Some items like ball bearings, regulators, diodes are imported so we have to give 4 months order in advance for these items.

Following facts observed in PMP:1) Yearly consumption of alternators 2) Monthly on an average 3) Daily on an average working days) 4) Monthly sale of alternators 5) Annual sale of 7022 Alternator 6) Inventory lying at PMP Crore (near about 45 days of alternators sale) Details of inventory as below:A Class items like raw material copper wire, ball bearing, Aluminum ingot, job work items & finished alternators C class items like Hardware, washer, spacer etc Nonmoving items 7) Manpower required for running third shift 8) No. of alternators produced in extra shift 9) Average no. of times to run extra shift in a month times extra shift run 11) Power cost for extra shift 12) Total power cost 13) Avg Inventory carrying during each month 14) Therefore Annual avg inventory carrying cost :- Rs. 60 Lakhs : - Rs. 19 Lakhs : - Rs. 8 Lakhs : - 25 workers + 1 Officer : - 100 nos. : - 4-5 times = 25 x 8 x 30 x 5 = Rs. 30,000 = Approx. 6000 Rs. / shift = 6000 x 5 = Rs.30,000 :- Approx Rs.1.0 Crore = Inventory x interest rate =1 Crore x 10% =Rs. 10 Lakh B class items like m/c steel components, WIP items : - Rs. 21 Lakhs : - Approx Rs. 0.8-0.9 Crore : - 17,000 nos. : - approx Rs.1.1 : - Approx. 50,000 nos. : - Approx 4,200 nos. : - Approx.175 nos.(25

10) Extra manpower cost: - no. of workers x man hrs. x cost/person in Rs/hr x no. of

15) Loss of sale of 7022 model per month /alternator)

= approx 500 nos. =500 x 1,600(Cost =Rs.8,00, 000

16) In addition to the above stock out cost considered as Rs.1, 00,000 due to idle men & machine, loss of production profit, premium price paid to transporter, penalty paid to the delayed OEM shipment. If we add all the figures above i.e. Total monetary loss = Extra manpower cost + Power cost + Loss of sale + stock out cost + Avg inventory cost = 30,000 + 30,000 +8, 00,000 + 1, 00,000+ (10, 00,000/12) = Rs.10, 43,335 per month Rs.10.5 Lakh Per month Rs.125 Lakhs per Annum i.e. approx. of one months sale of alternators. Therefore a huge cost is involved to streamline the production & timely supply to customers & many others intangible things happened, which dilute the image of PMP. Hence we had decided to correct our supply chain process & inventory management first. Our aim is to reduce the waste (anything other than the absolute minimum resource of material, machine & manpower required to add value to the product) in the supply chain & production. We decided to remove mismatch of C class items & some of B class items. Also decided to scrap non-moving items & after the modification some nonmoving items would be used as regular items.

CHAPTER-7 FINDINGS, INFERENCES & RECOMMENDATIONS After implementation of KANBAN, we achieved drastic radical change in our system. We have achieved a lot of tangible & intangible benefits from this system. Our morale becomes high. During implementation supplier played a major role in terms of delivery & quality of supplies. We achieved to imbibe KANBAN system on them to large extent & extended our help in all terms. During the preliminary stage of first 6 months we achieved following data:1. Monthly Production increased for 7022 alternator : - 1000 nos. 2. Therefore monthly sales increases by=1000 x 1600 = Rs.16, 00,000. 3. No more extra shift which saved :-Rs.60, 000 than earlier

4. No stock out due to B or C items saves 5. Cost of KANBAN bins added 7. Additional Freight cost added 8. Non moving items modification to moving items product) 9. Non moving items sold as scrap to local spare part retailer) 10. Hence non moving inventory lies in the system 11. C class items inventory reduced by 48% i.e. (still Rs.10 Lakh inventory pending in the system) 12. B class items inventory reduced by 42% i.e. 13. A class items inventory reduced by 34% i.e.

:-Rs.1,00,000 than earlier :-Rs. 50,000 :-Rs. 20,000 :-Rs.350,000

6. Cost of printing KANBAN cards & stickers added :-Rs. 5,000

(melting aluminum casting, using modified washers, spacers in the replacement :-Rs.50,000

(rejected copper wire, bearings, diode sold as scrap, through bolts & washers sold :-Rs.3,00,000 :-Rs. 9,00,000 :-Rs. 8,80,000 :-Rs. 20,50,000

(still Rs.12.2 Lakh inventory pending in the system) (still Rs. 39.5 Lakhs inventory pending in the system) 14. For imports item like ball bearing, voltage regulator, diodes, we reduced their delivery schedule from 4 months to 2 months. 15. Now average inventory reduced in the system by 40%:- Rs. 43,00,000 16. Therefore inventory in sys = Non moving + A items + B items + C items = 3L + 39.5L + 12.2L + 10L = Rs. 64.7 Lakh 17. Inventory holding cost/month = (Avg inv in a month x bank interest for 1 yr/12) = (Opening stock + closing stock)/ 2 x 10%/12 = (70 Lakh + 59.5Lakh) / 2 x 0.1 / 12 = Rs. 53920 / month Sr. No. Components Prev data per month Current data per Prev expendit Current expenditu Savings per month

month 1 2 Manpower cost Inventory Holding Cost A-60Lakh, B21 Lakh, C19Lakh, non move items-8 Lakh A39.5Lakh, B-12.2 Lakh, C10Lakh, Non move items 3.5Lakhs

ure in Rs 60,000 83,335

re / gain in Rs ------53,920

in Rs 60,000 29,415

3 4 5 6

Addl Freight cost Loss of production / sale Stock out cost Scrap cost by selling non move items Total savings in Rs.

------- 500 nos +1000 nos 8,00,000 100,000

20,000 16,00,000 ----50,000/12 4,000

20,000 8,00,000 1,00,000 4,000 973,415

Therefore total savings generated by implementing KANBAN system is approximately Rs.9.75 Lakhs per month. We continued to improve our performance day by day by utilizing the inventory efficiently & by streamlining the supply to fulfill the customers order timely. Apart from the above, following tangible benefits we have achieved A. Simplified system ::-

Due to KANBAN cards, we established a pre-determined inventory buffer through out the supply chain cycle. We have to monitor continuously on the KANBAN post where all KANBAN cards put, not to count physically each & every item before sending the schedule. Due to this visual signal, even store man also sent the signal to vendor for KANABAN as soon as empty bin returned from the shop floor. No need to use either the computer system or paperwork.

B. Prevention of stock out: Earlier due to small items like shaft nut, bearing cap or through bolts, production line got to be stopped. Men & machine became idle or produced unwanted model of alternators or halfway assembly of the alternators to achieve the target of shift. As the KANBAN system designed with lead time consideration, it prevented stock out of items unless some major disruptions at any work center or failures of machine at suppliers end. C. Increase in Delivery Performance by supplier:We involved the suppliers in a formal education program on KANBAN & JIT, utilizing SPC methods, made a delivery commitment from them& helped to establish a quality assurance plan at their plant. Two KANBANs were kept ready at any time at suppliers end. After receiving KANBAN signal, the supplier sent the delivery immediately. Also delivery lot size should be just enough to satisfy the immediate higher level requirement. . We have only to ensure that proper communication should happen.

D. Increase in Production & Sales:Due to uninterrupted supply of materials, we fulfilled the customers order timely & achieved the monthly target. Earlier due to stock outs, whole production line was stopped & we did not meet the schedule. But now we regularly meet the schedule, customer showed confidence in us & increased the order. Ultimately our production of 7022 model increased by 500 nos. per month. Also our per days target increased from 250 to 300 nos. alternators. E. Reduction in inventory:-

As the KANBAN bins introduced, we removed mismatch of quantities & established maximum & minimum inventory across the supply chain. Import items lead time reduced from 4 months to 2 months. Therefore we achieved reduction of holding cost of Imports item. For local & C class items, we achieved small lots in delivery i.e. in KANBAN quantity. Due to increase in production, a lot of inventory lying at our end has been consumed. Some non moving items modified & some sold as scrap. Overall we reduced the inventory holding cost by 40%. F. Increase in suppliers involvement Now we are providing the fortnightly schedule to our supplier & tentative supply of monthly KANBAN quantities well in advance so that they can plan accordingly. We helped them to meet quality requirements. We encouraged them to use process control charts instead of lot sampling inspection. We encouraged them to package in exact quantities & provided them KANBAN bins. Also we encouraged them to reduce their production lot size. G. Increase in Inventory turnover ratio Purchased material turnover during the period of implementation increased 1.5-2 times than previous 0.5-1 times.

H. Increase in meeting the delivery schedule of OEMs Due to this system, we regularly met the customers order on time. Delivery index of PMP improved & got more orders from OEMs. Also M&M showed interest & help for starting PMPs plant at Rudrapur to start supply of alternators for M&M, Rudrapur division. We achieved some Intangible benefits apart from tangible benefits:-

A. Improved Product quality:PMP improved quality & delivery performance of alternators. Hence at the same manufacturing cost PMP improved its operating profitability by reducing waste across the supply chain. B. Improved Productivity:Resources were used efficiently & effectively & only produced when needed. Unwanted production (apart from customer orders) of alternators was stopped, so resources were not blocked & no time was spent in finished goods store for waiting to be ordered. Due to efficient planning, workers achieved the shifts target easily. There was no extra shift to be run. Productivity improved significantly. C. Improved plant efficiency:Plant efficiency was increased due to well coordination & support of other departments also. Maintenance people carried out weekly, monthly, yearly maintenance according to maintenance schedule on holidays. Daily maintenance also carried out during the start of each shift. Manpower on the shop floor used effectively. Store people also issued material efficiently in KANBAN bins. Overall keeping the same resources earlier, the plant outputs substantially increased. D. Better production scheduling:Customers monthly order was divided in days output, and then shifts output, then hourly output i.e. by going backtracking of the order in micro level & ensured work load uniformity. Monitored the KANBAN cards & delivery of the respective item closely & effectively. System provided flexibility for changing the production line to cope up customers order. Better scheduling achieved with better flow of material & reduced setup time.

E. Reduced inspection of incoming material:We provided suppliers loose specifications i.e. supplier relied more on performance specifications rather than on design performance & encouraged the supplier to be more innovative. We imbibed the concept of Do it right, the first time, every time & helped them to meet quality requirements. Encouraged them to use SPC charts instead of lot sampling inspection. Visited the suppliers plant once in a month for sorting out any quality issues. F. Better Buyer Seller Relationship We assumed suppliers place as an extension of our buying centre & during KANBAN implementation we encouraged supplier for the improved performance & helped in all matters (e.g. educated them regarding JIT & KANBAN system, reduced their inventory, encouraged in quality matters. We significantly changed our sourcing policy to shift single source policy for long term contract & mutual benefits. We considered suppliers participation from the initial stages of this KANBAN project. We achieved suppliers reaction capability to our schedule changes without any special premium paid to the transporter or carrying additional inventory carrying costs. Suppliers business was increased & operating profitability was also increased. G. Improved morale in Production People were more enthusiastic & energetic & responded well to this concept of KANBAN. As the production streamlined, they achieved their shifts target easily. No need for extra shift even though the schedule was increased. Also there will be neither effect of absenteeism nor the breakdown of the machine. All of them co-operated & helped each other to achieve the target.

H. Reduction in paperwork

There was no need of computer to generate the work order & to check the stock. No print of purchase order required. It saved a lot of time for the formal paperwork, changing the delivery date & quantity required in PO. I. Increased Market value & improved customer satisfaction

Due to better customer service, customer satisfaction level & market value of PMP increased with respect to the competition. It would help PMP to build up its image as a provider of Value for Money to its customers. As the customers expectations were achieved, PMP got the major upcoming orders & a lot of other new customers.

Recommendations:After gaining the above benefits, management decided to implement KANBAN for all models of alternators & all of its products in phase wise manner. As the current system is manual, we decided to go for computerized system since the new technology available in the market. We recommended using the bar code on KANBAN cards for generating the trigger to have errorless system.

CHAPTER-8 CONCLUSION Inventory is an integral part of the any organization. Not only it adds value to the product but adds to its cost. Organizations carries inventory to economize on buying / manufacturing cost, to remain flexible with customers demand, to prevent stock outs, to stabilize the production, to prevent loss of sale & to satisfy other business constraints (like suppliers condition of minimum quantity, government regulations, seasonal availability) . But while satisfying the above facts, the inefficient use of handling inventory (ability to convert it into finished product) becomes problem for any organization. Also wrong buying methods & wrong calculations helps to pile up the inventory across the supply chain. The company is already running the heavy expenditure on the inventory to cope up the customers requirement & stabilize the production in this competitive market. This inventory issue can be improved by utilizing the available sources properly, structuring the replenishment cycle efficiently & effectively & making effective sourcing policy, which has been shown as an example of 7022 alternator in the project. By using KANBAN system, PMP improved its sourcing policy, suppliers relations, production scheduling, timely delivery to customers, product quality, inventory reduction, sales of the product & competitive position in the market. PMP uses KANBAN & JIT purchasing not just an inventory control or inventory reduction technique but a philosophy or an approach to productivity which is applicable to all facets of manufacturing process, including supply chain. KANBAN & JIT purchasing implies a significant departure from the conventional purchasing practice in a variety of ways. A phased approach will be therefore used for its full implementation. As this effort intensifies, KANBAN & JIT purchasing might

well assume the character of coordination of outside manufacturing & inside manufacturing.

CHAPTER-9 SUMMARY OF THE PROJECT

This project carried out to remove excessive inventory, better inventory control, streamline the production & continuous improvement in the organization. Inventories are the physical stock of items that PMP keeps in hand for the efficient running of its organization. But due to mismatch quantities of stocks, overbuying, inadequate production planning, PMP failed to meet the customers requirement on time. Therefore PMPs inventory holding cost, procurement cost, overhead cost & stock out costs was high & dented its profitability margin. So PMP decided to implement Japanese technique KANBAN to keep better control on the inventory. PMP selected 7022 model of alternator for the implementation of KANBAN technique. PMP got the fantastic results after initial implementation of KANBAN. Company achieved the reduction in inventory with increased production & sales within 6 months period of implementation. Customer satisfaction levels of companys products increased. PMP achieved increased market share & more orders from OEM & foreign customers. From this PMP decided to go for the implementation of KANBAN on all alternator models & companys other products in phase wise manner. Also company decides to use latest technology of bar code along with KANBAN system.

ANNEXURES I) List of Diagrams ,charts a) KANBAN Bins, carts, store & Supplier KANBAN card b) Alternator yearly sale data II) List of Tables a) Alternator sale data before & after KANBAN system b) KANBAN Bin Stickers c) Comparison between Traditional purchasing & JIT Purchasing

KANBAN bins

KANBAN cart

KANBAN store

Supplier KANBAN Card:SUPPLIER KANBAN Part Name BRUSHCARD ASSEMBLY Part No. UOM

70230720
KANBAN Qty Ship Lot

Ea
Lead Time

300
BUYER Vendor

300

3
MBJ

Samartha Enterprises

Storage Location 6 - 23, 24

Card Sr. No. 100541

1 0 0

Card No. 1 of 4

Alternator yearly sale data April to July : Before implementation of KANBAN system. After implementation of KANBAN system. August to March :

Alternator Sale Figures

7000 6000 Alternator Qty in nos. 5000 4000 3000 2000 1000 0
Ju ly Au Se gus t pt em be r O ct ob er No ve m De be r ce m be r Ja nu a Fe ry br ua ry M ar ch Ap ril M ay Ju ne

5435 3957 4391 4710 4642

5045

5525 5441

5963 5445

5735

5989

Series1

Month

Yearly Sale figure of Alternator Models

Before implementation of KANBAN system June' 04 July' 04 May' 04 Aug' 04 Apr' 04

After implementation of KANBAN system Sept' 04 Nov' 04 Dec' 04 Feb' 05 Mar' 05 Jan' 05 Oct' 04 Total 884 5 127 36 766 2115 20858 30 255 150 1512 1495 80 327 1169 388 0 13151 514

Model 7016 7017 7018 7019 7021 7022 / oe 7023 7026 7033 7036 7043 7046 7063 7065 7068 7803/ oe 7807

100

100 22

242

162 50 36 180

10 5

100 50 100

125

45 5

124 1152 8 783 1245 108 8 17

62 2050

50 2100 50

25 2200 50 100 70

1800 140

2150 10 25 180 45 100 100

2100 5 5 150 175 5 115 90

225 207 5

1 27

150 150 107 73

103 30 7 147

81 42 103

185 180

302 198 58 129 130

500 300 45 175 18

100 100 50 25 50

50

100 50

200

949

1009

664 5

723 80

1200

805 150

1500 180

991 49

1460

1275 50

130 0

1275

7809 7811

20

24

25

15

50

25

50

100 85

313 85 0 12787 6264 1082 62278

EFA IFA 70A IFA 90A Total

1312 408

1043 780 30

1299 944

179 1 495 20 464 2

1225 400

875 450 125

700 200

689 576 57

1135 80

875 300 200

525 104 0 270 573 5

1318 591 380 5989

3957

4391

4710

5435

5045

5525

5441

5963

5445

KANBAN Bin Stickers :PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO 70220501 DEH M/C D-1 40 70250104 SPACER D-1 900 70930213 BALL BEARING D-2 150 70930503 BEARING RETAINER D-2 900 70510503 PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO 70220501 DEH M/C D-1 40 70250104 SPACER D-1 900 70930213 BALL BEARING D-2 150 70930503 BEARING RETAINER D-2 900 70510503

DESCRIPTION BEARING RETAINER STATION NO D-2 BIN QTY 600 PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY 70930502 BALL BEARING D-3 150 70930105 WOODRUFF KEY D-5 600 79010106 SHAFT NUT D-5 900

DESCRIPTION BEARING RETAINER STATION NO D-2 BIN QTY 600 PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY PART NO DESCRIPTION STATION NO BIN QTY 70930502 BALL BEARING D-3 150 70930105 WOODRUFF KEY D-5 600 79010106 SHAFT NUT D-5 900

Comparison between JIT Purchasing & Traditional purchasing Purchasing Activity Purchase lot size JIT Purchasing Traditional Purchase Purchase in small lots with Purchase in large batch size frequent deliveries. with less frequent deliveries. Selecting supplier Single source of supply of a Rely on multiple sources of given part in nearby supply for a given part and geographical area with a short term contracts. long term contract. Evaluating supplier Emphasis is placed on Emphasis is placed on product quality, delivery product quality, delivery performance, and price but performance and price by no percentage of reject from certain percentage reject is supplier is acceptable. acceptable. Receiving inspection Counting and receiving Buyer is responsible for inspection of incoming receiving, counting, and parts is reduced and inspecting all incoming eventually eliminated. parts. Negotiating and bidding Primary objective is to Primary objective is to get process achieve product quality the lowest possible price. through a long term contract and fair price.

Determining mode transportation Product Specification

Paper work

of Concern for both inbound and outbound freight, and on-time delivery. Delivery schedule left to the buyer. Loose specifications. The buyer relies more on performance specs than on product design and the supplier is encouraged to be more innovative. Less formal paperwork. Delivery time and quantity level can be changed by phone calls.

Packaging

Concern for outbound freight and lower outbound costs. Delivery schedule left to the supplier. Rigid specifications. The buyer relies more on design specs than on product performance and suppliers have less freedom in design specs. Requires great deal of time and formal paperwork; changes in delivery date and quantity require purchase orders. Small standard containers Regular packaging for every used to hold exact quantity part type and part number and to specify the precise with no clear specs on specs. product content.

ISO 9001 Certificate