Process Flow Optimization and

Inventory Management atKirloskar

Electric Company Ltd

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Table of Contents
ACKNOWLEDGEMENT
.2

INTRODUCTION
.3

DEFINATION(Problem Identification)
.4

MEASUREMENT(Data Collection)
...4

ANALYSIS(Root Cause Identification)

KPI
Tree
.5
ABC Analysis of Raw Materials (Inventory)
..6
FSN Analysis of WIP and Finished Goods
Inventory.6
Capacity Planning for SDT manufacturing
process..8
VSM for SDT manufacturing
process.8
Fishbone
Diagram
.9

IMPROVEMENTS(Recommended Solutions)

Improved Contribution.
..10
Inventory
Management..
10

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Process Flow
Optimization..
..11

CONTROL (Results of Solutions at 5 % Level of implementation)

Pareto Analysis of Solutions...
..12

REFERENCES

ACKNOWLEDGEMENT
We would like to express our indebtedness to all those who have helped us in doing this
report or those who provided the possibility of completing the project or have been associated
with the report in any way and made it a worth-while experience.
We would like to express our gratitude to our batch mates and our seniors who shared their
invaluable experiences and helped us in every possible way to make this project a success.
Furthermore we would like to thank Mr Rajshekar of Kirloskar Electric Company Ltd for his
valuable inputs like OEE charts and Capacity planning chart of Kirloskar plants.
We would like to express heartfelt thanks to Prof.xxx for having given us the opportunity and
lending us his support for working on such a project and guiding it to successful completion.
Thank you all.

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INTRODUCTION:Company OverviewKirloskar Electric Company Ltd. is one of the leading Indian electrical engineering
companies. Established in 1946, Kirloskar Electric was the catalyst for industrialization in
India.
Kirloskar Electric produces more than 70 products under eight product groups. They cater to
core economic sectors such as power generation, transmission & distribution, transportation,
and renewable energy, to name a few.
The Kirloskar Electric organization comprises nine manufacturing locations and 34 sales
offices spread across the country. They have a large network of spare parts dealers and
service centres. This enables them to provide premium products, exemplary systems &
services at competitive rates to our clients.
Kirloskar products are known for their high quality, durability, and reliability. This is due to
their emphasis on design, engineering, and manufacturing. They adhere to international
standards by acquiring & adapting latest technologies along with in-house R&D.

Industries Served1) Sugar

2) Cement
3) Steel
4) Oil & Gas
5) Power
6) Agriculture
7) Refineries
8) Nuclear

Product Group1) AC Motors

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2) AC Generators
3) DC Motors
4) DG Sets
5) Transformers
6) Switchgear
7) Electronics
8) Tractions

DEFINATION:Broad problem definition:- Kirloskar Electric Company Ltd has been facing the
problem of decreasing profit margin for the past 3 years, and in 2015 it saw
negative ROIC of -162% which is the lowest in the past 10 years of business.
Problem breakdown:1) High Cash conversion Cycle ( Days sales outstanding + Days
Inventory Days A/c payable):Kirloskar Electric Company Limited =85.68 days
Schneider Electric India = 77.11 days
ABB India Ltd=81.5 days
2) High Days Inventory:Kirloskar Electric Company Limited =99.76 days
Schneider Electric India = 77.11days
ABB India Ltd=77.36 days
3) Inventory/Revenue Ratio
Kirloskar Electric Company Limited =0.32
Schneider Electric India = 0.27
ABB India Ltd=0.14

MEASUREMENT (Data Collection):Aim for data collection:1) Cash conversion cycle calculation
2) Days Inventory
3) Inventory classification

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4)
5)
6)
7)

OEE Calculation
ROIC Calculation
Capacity Planning
Value Stream Mapping

Data collected
1) Major Raw material Consumption for the FY 2014-2015
2) Inventory turnover ratio, WIP and Finished goods Inventory for FY 20142015
3) OEE Chart details
4) Process flow data for SDT (Transformer)
5) Man power planning, working hour , quality , performance of equipments
6) Financial ratios for the FY 2014-2015

ANALYSIS:KPI TREE
All cost related data in INR Crores

Cause Analysis:1) OEE is too low because of which the contribution for the year has decreased
drastically to create an environment for negative EBIT

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2) The ROIC for the year is too low -162% which is the lowest in the past 10 years
3) Industry average of ROIC = 14.35%
4) In OEE as per Planned machine & man power activity
Availability: - 3 shifts of 8 hours including 1.5 hours lunch and 1 hour break (Buffer)
Availability = (18.5/24) *100 = 77%
Quality as per Machine specifications in annual reports and Investor data = 89 %
Units produced in 2015 =19869, Actual production possible = 43860
The above figure suggest OEE = 45%
OEE = Availability * Performance *Quality => Performance = 65.6% which is very
low suggesting many maintenance activities take place due to breakdowns , errors etc.
ABC and FSN ANALYSIS OF INVENTORY
ABC ANALYSIS
OF RAW
MATERIALS

Raw Materials
Inventory Data.docx

Class of Item

Number of Items

Value

225.7 Crores

60.73 Crores

13

13.57 Crores

Pareto (Left Axis- % No. of items, Right % value in crores

Chart Title

95.48
75.23

FSN ANALYSIS OF WIP & FINISHED GOODS INVENTORY

Item
Motors

Avg.
Inventory Turnover
COGS Inventory
Ratio
Category
150
99.16
1.52 S

100

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Transformer
s
DG Sets

87.84
62.16

20.02
11.36

4.39 F
5.48 F

Cause Analysis:1) The Item which contributes the most to the revenue is the slowest moving item.
2) The Inventory turnover ratio of Motors is 1.52, but motors contribute the most to the
revenue and have the highest COGS. As a result of this the average Inventory Turnover Ratio
comes down to 1.84 which is less than 2 implying the overall inventory movement is slow.
(http://ijiset.com/vol2/v2s4/IJISET_V2_I4_44.pdf) Categorisation into FSN
3) Number of orders not adjusted as per PREFERENTIAL TREATMENT on the basis ABC
analysis

VALUE STREAM MAPPING Layout & Process flow

VSM Analysis for SDT Transformers was done to find out Non Value adding time
Process flow for Pre Assembly Line

Process flow for Assembly Line

SDT Line process Data:All time in hour

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LV
Windin
g
Set-Up
Time
Cycle Time
No.of
Shifts
No. Of
workstation
s
No. Of
Operators
Batch Size

HV
Windin
g

Core &
Coil
Assembl
y

LV & HV
Connection
s

Tankin
g

LFH/NF
H

Tes
t
Shipping
0.2
1.6
5

Cool

0.6

0.6

0.3

1.6

1.25

3.75

0.75

1.75

0.5

7.5

2.25

1 -

1
1

2
2

2
1

2
1

2
1

1
6

1
6

2
1

0.5
1.2
5

Capacity Planning:-

LV Winding
HV Winding
Core
&
Assembly

No.Of
workstatio
ns
1
2

Batch Size
1
2

Daily
Availabl
e
Time(hr)
19.5
19.5

13

Net
Operati
ng
Time(hr
)
1.25
4

Capacity 315 Days

4914
3071.25

0.75

5460

Coil

LV
&
HV
Connections
2
1
13
1.75
2340
Tanking
1
1
13
0.5
8190
LFH/NFH
1
6
19.5
7.5
4914
Cool
1
6
19.5
2.25
16380
Test
1
1
8.125
0.5
5118.75
Shipping
1
13
1.2
3412.5
Ttotal = 315*3*(8-1.5) = 6142 hours, Yearly demand = 3000, Takt time =
6142/3000 =2.07 hours
VSM for the year 2015
All values are in days

0
1.2
2

2
1

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SDT

Through put
Value Added
Ratio of Value Added
time
Time
Waste Time
%
Days
Days
Days
37.9
5.5
32.4
14.51

Cause Analysis:1)
2)
3)
4)

Only 14.51 % Valued Added Work in the complete cycle.

Capacity of HV winding and packing and Shipping just able to meet 2015 demand
HV Winding has to operate with larger Batch Size
Building up of WIP just before HV winding as it is just able to meet the capacity
requirements
5) Very high FINISHED goods inventory days of 19.5 days due to decreased capacity
availability at shipping.
6) These high WIP and FINISHED goods Inventory build increases CASH
CONVERSION CYCLE of Kirloskar Electric more than Industry average
7) Increase in CASH CONVERSION CYCLE and carrying cost of Finished goods
inventory were the major reasons for negative EBIT of Kirloskar Electric in 2015

FISH BONE ANALYSIS

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IMPROVEMENT (RECOMMENDED SOLUTIONS):Problem 1:

Low Contribution
Improvement:a) Improve OEE: - Speed loss of operations to be reduced by cutting down waiting
time.
Cellular layout to be proposed for SDT and MDT line to reduce idle time of
machines.
Example:A 5 % increase in Performance will take OEE to 48.5 %
Contribution will change from 218.559 crore to 233.673
EBIT will see a 7.63 % increase to -187 crore.
b) Reduction of Fixed cost :- A huge amount of cost in incurred in Maintenance
Maintenance cost /Revenue = 104.43/510 *100 = 20.4 %
As compared to industry average of 12.73%

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Asset turnover ratio = 0.74 which is less than ABB India 1.12 and Schneider India
1.08
Problem 2:Inventory Management:1) PREFERENIAL ORDERING as per ABC Analysis:EQUAL TREATMENT TO ALL:-

Item

Annual
Consumptio
n( IN INR
Corer)

225.7

60.73

13.57

Numb
er Of
Orders

Value
Avg.
per
Inventor
Order
y
18.808 9.40416
12
33
67
5.0608 2.53041
12
33
67
1.1308 0.56541
12
33
67
Total
12.5

PREFERENTIAL TREARTMENT ON THE BASIS OF ABC ANALYSIS:-

Item

Annual
Consumptio
n( IN INR
Corer)

225.7

B
C

60.73
13.57

Numb
er Of
Orders

Value
Avg.
per
Inventor
Order
y
8.3592 4.17962
27
59
96
8.6757 4.33785
7
14
71
2
6.785
3.3925
11.9099
Total
87

1) It will lead to decrease in Inventory up to 60 Lakhs

2) Real Time data: - Real time data of available Inventory level of items required
by a particular department must be made available to them so that they can
order in advance to avoid any delay.
3)

Improved Capacity Planning: - Proper Capacity planning should be done at

HV Winding machine operation and shipping area in order to avoid any buildup of WIP and Finished goods Inventory.

4) FIFO:-FIFO mode of Inventory management should be followed at each level

of operation in assembly Line area to avoid accumulation of inventory before
any process.
Problem 3:Very low Value added time ratio:-

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1) Bottleneck: - One more HV winding machine to be brought from downstream

MDT line. All winding machines to undergo change/over at the same time and
work on one coil of the same project
2) Batch Size: - Batch Size at HV winding can be reduced to one.
3) Cellular type: - Connections assembly and tanking operations to assembled
into one cell to cancel waiting time before tanking and reduce work stations.
New operation Cycle time for HV winding machinePreviously 4 hours and now as all 3 machines c/o at the same time c/t = 4/3 = 1.33
hours
New Capacity for HV winding = (315*19.5*1)/1.33= 4618.42 compared to
3071.54, demand = 3000, so bottleneck is removed.
New Capacity for Assembly and tanking :-( 1*13*315)/1.75 = 4680, compared
to 2340 of Assemble previously which was less than 3000 which was the demand
for FY 2015
4) Introduction of FIFO: - Now as all the operations have c/t less than takt time
and all the capacities are more than the demand, FIFO can be applied in b/w
processes.
New VSM:-

SDT

Through put
Value Added
Ratio of Value Added
time
Time
Waste Time
%
Days
Days
Days
12.163
5.068
7.095
41.67%

With the new Capacity planning the Ratio of Value added %increased
from 14.51 to 41.67%

CONTROL:-

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Pareto Analysis: - To analyse which process improvement contributes most

Pareto
solutions.xlsx

towards improvement of ROIC

INR crores, Right Axis-% Contribution)

(Left vertical Axis: - Amount saved in

100
93.14

72.74

72.3 % wastage/loss in Revenue is attributed to process flow at

assembly line ( Low Value added time)
REFERENCES:CMIE Data base
http://www.gurufocus.com/term/Operating%20Income/NSE:KECL/Operating
%2BIncome/Kirloskar%2BElectric%2BCo%2BLtd
http://www.kirloskar-electric.com/images/pdf/investor/financial/annualreport/annual_report_2014_15.pdf
http://www.kirloskar-electric.com/images/pdf/investor/financial/annualreport/rav.pdf
http://ijiset.com/vol2/v2s4/IJISET_V2_I4_44.pdf
https://books.google.co.in/books?
id=5BDWAiOnSogC&pg=PA173&lpg=PA173&dq=roce+vs+oee&source=bl&ots=
csPbFL_GpK&sig=dADJGu2W4L4GuHjufcMOXTr8bM&hl=en&sa=X&ved=0ahUKEwiS6NHuhYvKAhVBBY4KHerxBygQ6AEIN
DAD#v=onepage&q=roce%20vs%20oee&f=false
http://www.oee.com/calculating-oee.html