INVENTORY MANAGEMENT CASE STUDY :Maruti udyog limited(mul) The raw material consumption cost was 75-83% of net sales. Therefore the company has been paying special attention to its inventory management. Around 70% of the firm’s components are outsourced. Average inventory turnover ratio of the company increased from 11.9 (in 2005-06) to 13.9 (in 2006-07). The company has undertaken various initiatives to improve it’s inventory management because of which there has been an increase in its average inventory turnover ratio over the years.

1. MARUTI UDYOG LIMITED(MUL)-II
“INVENTORY MANAGEMENT”
Submitted to: Submitted by:
Prof. Meena Sharma Aashna Garg
UBS, PU Angad Singh
Mohit Goyal
Nikhila Kharb
Ravneet Kaur
Vishal Vivek

2. MARUTI UDYOG LIMITED
Maruti Udyog Limited, is an automobile manufacturer in
India. It is a 54.2%-owned subsidiary of Japanese automobile
and motorcycle manufacturer Suzuki Motor Corporation. As
of January 2017, it had a market share of 51% of the Indian
passenger car market.

3. ABOUT THE CASE
• The raw material consumption cost was 75-83% of net sales.
Therefore the company has been paying special attention to
its inventory management.
• Around 70% of the firm’s components are outsourced.
• Average inventory turnover ratio of the company increased
from 11.9 (in 2005-06) to 13.9 (in 2006-07).
• The company has undertaken various initiatives to improve
it’s inventory management because of which there has been
an increase in its average inventory turnover ratio over the
years.

4. 1. Are you satisfied with the claim of the
management regarding the improvement in the
management of inventory by MUL? If so, on what
basis.
• Inventory Turnover ratio is the efficiency ratio that measures
how many times average inventory is sold or turned during a
period. It shows that how effectively the inventory is managed by
the company.
• The average inventory turnover ratio of the company increased
from 11.9 in 2005-06 to 13.9 in 2006-07.
• In the year 2001-02,
▫ Net sales: 7067.7cr
▫ COGS: 75% of Net sales
▫ Average Inventory: 820.55cr
▫ Inventory Turnover Ratio = COGS/ Average Inventory
(.75*7067.7)/820.55=6.46

5. Continued…
• In the year 2006-07,
▫ Net sales: 14592.2cr
▫ COGS: 75% of Net sales
▫ Average Inventory: 843.17cr
▫ Inventory Turnover Ratio = COGS/ Average Inventory
(.75*14592.2)/843.17=13.3
• Thus, from the data we calculated the inventory turnover ratios and
found out the increase in ratio from 6.46 in 2001-02 to 13.3 in
2006-07.
• Thus, we can say that the company is doing good in inventory
management.

6. 2. What steps has MUL taken in the recent past to
improve its inventory management?
• Inventory management of MUL has been improved due to the
Just-in-time (JIT) inventory management followed by the
company.
• The initiatives were:
▫ Use of Bar Code
▫ Delivery instruction system
▫ Kanban production system
▫ Reduction of vendor costs
▫ Vendor management

7. Continued…
• Bar Codes:
▫ Reduce processing time
▫ Increase accuracy of data
▫ Increase speed of operation
• Delivery Instruction System:
▫ Reduced lead time (start to end production time).
▫ Reduced inventory requirements (buffer stocks)
▫ Online buying reduced the promotion cost.

8. Continued…
• Kanban Production System:
▫ For casting of delivery dates is done every 15 days and the
supplies plan accordingly.
▫ Connected through electronic communication system.
▫ E-Nagare is linked to material requirement planning
(MRP).
• Vendor Management:
▫ Using its vendor development program, Maruti has reduced
the number of vendors from 370 in 2000 to 299 in 2003
and plans to reduce it further to 100.
▫ 80% raw material comes from within 100 kms
▫ Many small suppliers to Big tier 1 suppliers
▫ Better operational efficiency and economies of scale.

9. Continued…
• Localization:
▫ Working to develop capacity of the vendors to manufacture
and supply components.
▫ Minimum localization 70% and max 96%.
▫ Increased proportion of the Indigenous products.

10. 3. What techniques has the company taken
recourse to in order to cut down its ordering costs
and carrying costs?
• Ordering costs are the expenses incurred to create and
process an order to a supplier.
• carrying cost of inventory or holding cost refers to the total
cost of holding inventory.
• Steps to reduce these costs:
▫ Vendor Management
▫ Localization

11. Vendor Management
▫ 70% suppliers within 100km radius, components can be
supplied directly to assembly line, thereby reducing the
packaging costs.
▫ Shifting from small suppliers to tier-I suppliers who supply
assembled components, thereby reducing ordering costs.
▫ Man hours spent per car reduced by 54% in last three years.
▫ Encouraged vendors in far-away places to set up warehouses
nearby.
▫ WWP(Worldwide Purchase) system- where a vendor may
become a sole supplier for a Suzuki product in several
countries.
▫ Milk run systems- to utilize truck’s carrying capacity by
pooling material from different vendors.

12. Localization:
▫ Company has worked on increasing the proportion of locally
sourced components and raw materials reducing the carrying
costs.
▫ They aim to achieve 90% localization level. The proportion of
domestic to imported steel has increased from 20:80 to 50:50
within three years.
▫ This proportion is expected to rise more in the coming years.
▫ The raw material used from domestic suppliers has grown
from 73% in 2003 to 87% in 2007.

13. 4. How has MUL successfully
implemented the JIT?
• Company is making a good use of technology, ie. Delivery
instruction system, Bar code and e-Nagare.
• Proper and efficient vendor management.
• Increasing supplies from domestic suppliers, thereby reducing
costs.
• Maruti supported its vendors for setting up plants, automation of
process and value engineering.

14. THANK YOU