Hero Honda Final

8/2/2019 Hero Honda Final

1/20

WORKING CAPITAL MANAGEMENT OF

HERO MOTOR CORPORATION

Rajesh Saha (U409024)

Rabi Narayan Mohanty (U409023)

Hitanshu Sahu (U409009)


2/20

WORKING CAPITAL CONSTITUENTS:

HERO HONDA MOTORS LTD


3/20

Negativeworking

capital

The working capital of the company is negative

Current liabilities of the company are more than the currentassets of the company.

The reason behind this is that at any given point of time theamount blocked in creditors is more than the amount blocked in

its current assets, mainly in the inventory cash and debtors.

No shortterm bankborrowings

There are no short term bank borrowings taken by thecompany to finance the current assets of the company.

Current assets of the company are finance by the creditdeferral toward its creditors.

Lowercurrent ratio

The current ratio of the company is very low which indicates

that the company is following aggressive policy. Under this policy the company does not have the short term

liquidity but the amount blocked in the net working capital iszero which gives the company more profitability.


4/20

USE OF INVENTORY CONTROL TECHNIQUE

JUST IN TIME - control inventory onthe shop floors.

Using JIT, company are able to reduce the handling cost which meanswhen the raw materials are needed for the input at that time only theinventory are brought down on the job floor.

supply chain management system , companydirectly send finished goods to the customers so

again it reduces the handling cost of the finishedgoods.

Using supply chain management system, thecompany also reduces the time of converting raw material intofinished goods and then selling it to end customers.


5/20

DEBTORS - DEALERS Company uses focused system called DEALERS MANAGEMENT

SYSTEM, and this is an online network system through which the

company is directly related to their dealers all over the INDIA.

For example when any dealers are in shortage of the products thenthe demand is directly sent to the company so the time gap is

reduced in placing the order and then receiving the order. DMS

system also helps in receiving the money from debtors on time, as

debtors get aware when they have to pay to the company and it also

helps in determining the discounts availed in different order of lots of

goods.


6/20

USE OF CREDIT DEFERRAL POLICY AS FINANCINGALTERNATIVE AND ALSO BANK CREDIT Many companies finance their working capital by the

deferral policy of credit or by bank credit. Using deferral

policy many companies are able to manage their working

capital at very low cost. Use of bank credit is very old

system but thing which matters is how they use their credit

system in managing working capital. Companies try to pay

their debts as late as possible through which they can use

their credit period in managing working capital which also

not affects their goodwill in the industry.


7/20

DECENTRALISED CASH

MANAGEMENT SYSTEMCollection of money from dealers or other debtors is a big

problem for the company these days in any industry. In the

last two years many companies have decentralized their

system in collecting the cash from the debtors. By this

system many companies have reduced their cost of

collection from their debtors and even they have increased

the working capital of the company.


8/20

OPERATING CYCLE ANALYSIS

FINANCIAL ANALYSIS

There has been a constant decline in the raw materials

conversion period, predominantly due to :-

1) Good vendor management system

2) Just in time ( JIT )

3) E-Kanban system


9/20

Work in process conversion period

Hero Honda has a low WIP Conversion period of .72 days

due to its high technological know how as it has acollaboration with the Honda company, Japan.

Their operational efficiency and their e-kanban system is inplace.

They use the JIT system and all this decreases their WIP conversionperiod.

OUTCOMEThere has been an increase of 11.2% in the sales of hero Honda but the overallfigure has changed from 3000751 to 3336756 so the absolute figure is very large so

to change the work in process into finished goods at a fast pace was veryimportant in case of hero Honda.


10/20

In the case of hero Honda ltd theFGCP is 2.4 which is vey less ascompared to the industry. The

reasons are their betterrelationship with their dealers,better network and the CRM andSCM in place.

Finished goodsconversion period

The trend is the same across all thecompanies as there has been a suddenincrease in the prices of raw materials(steel, nickel and aluminium ) and thats

why the receivables are increasingthroughout the industry. As they want tohave better relationship with theircreditors.

Debtorsconversion period

The hero Honda is cashingon the better relationshipwith their suppliers and the

cash discount they give, theyare capitalizing on that.

Creditors deferralperiod


11/20

RATIO ANALYSIS Current ratio and quick ratio: it is the ratio of the current

assets to current liabilities.

In the case of Hero Honda it is low, showing the aggressive

polices the Hero Honda is following and the same case is

with the Bajaj but in case of TVS it is increasing as they

have a conservative approach.


12/20

Inventory turnover In the case of Hero Honda we see a gradual increase in the

inventory turnover

Better percentage increase in the sales of Hero Honda and

also the raw material costs as a percentage of total sales

increase from 69.5% to 72.5% i.e. a increase of 3%.


13/20

Inventory Holding PeriodThere has been a constant decline in hero Honda. As their

conversion of inventory is better because of their efficient

operations and their JIT and SAP in place whereas in case

of TVS it is increasing because they have a conservative

approach and they keep a high level of safety stock.


14/20

Debtors turnoverLast three years trend depicts decreasing statistics as Hero

Honda has dealer management system where they sell their

product to the dealers and then the dealers sell it to the

consumers.


15/20

Current assets to fixed assets ratio This shows what kind of policy we are following a high ratio

shows conservative approach whereas a low ratio shows

aggressive approach

Hero Honda and Bajaj auto ltd. have high ratio: A

aggressive approach

whereas in TVS have low ratio: A conservative approach.


16/20

VENDOR MANAGEMENT

SYSTEMIt is information technology method which supports theprocess and management of acquiring the inputs or rawmaterials from the suppliers.

Tasks associated with vendor management are: Managing suppliers performance Negotiating with the suppliers Obtaining and evaluating quotes from suppliersThe performance of supply management departments andsupply management professionals is commonly measuredin terms of amount of money saved for the organization.


17/20

JUST IN TIMEIt is an integrated set of activities designed to achieve high-

volume production using minimal inventories of raw

materials that arrive at the workstations exactly when they

are needed. JIT helps in avoiding waste, machine

downtime and it also keeps proper check on the quality

aspect of the inventory.


18/20

ERP is software which integrates thedifferent functions in the organizations.It eliminates the need to obtain differentapplications for each of the businessneeds.

ENTERPRISERESOURCEPLANNING:

it is a technique in which the idea is toapply a total systems approach tomanaging the entire flow of information,materials, and services from rawmaterials suppliers through factories andwarehouses to the end customers.

SUPPLY CHAINMANAGEMENT:


19/20

DEALERSHIP MANAGEMENT

SYSTEMThis is a program which manages the entire dealer of the

company which improves the communication level

between dealers and the company and it also reduces the

cost of handling them


20/20

IMPLICATIONS IN THE COMPANY

IT has a direct online network with its suppliers to ensure a seamless flow ofparts from vendors to its units. Through vendors management system HERO has

reduces it manufacturing and processing cost from to 1.74% to 1.64%.

To improve the efficiency and inventory cost, it is also using the concept of JUSTIN TIME beyond the shop floors.

With the help of vendors management HERO uses only the required inventories which is tobe processed as to avoid the inventory cost on the shop floors. Through this concept the raw

materials can be properly checked on the aspect of quality the company is also able toreduce the handling cost of inventory on the job floor.

The implications of vendor management system in HERO, has increased the total numbersof vendors to 135 from 46 and in the same time the ordering cost and handling cost have

also decreased which in the end affecting the companys working capital. The companyplaces online order to the suppliers which is reducing the time gap taken in supply of rawmaterials.

HERO also uses the enterprise resource planning which is SAPR/3 through which it is ableto integrate its different functions inside the organization. Using the ERP System, Honda

was easily able to implement the new system of VAT when it was implemented by Haryanagovernment, without much investment in its financial system.

Hero Honda Final

Documents

Transcript of Hero Honda Final