how much does cost of material procurement affect bottomlines?

1. BHEL 2009-2010 2010-2011 2009-2010
Rs(crore) Rs(crore) % increase YoY Rs(crore)
Purchasing cost 17964.29 20658.8 14.99925686 13857.01
Inventory cost 9283.8 11017.5 18.6744652 1415.37
Material Cost 20672.32 22824.3 10.40995882 14280.12
Sales 34498.5 43678.6 26.61014247 36995.2
Expenditure 28045.7 34320.3 22.37277016 33180.39
Ratios:
Purchasing cost/sales 0.520727 0.472973 0.374562
Inventory cost/sales 0.269107 0.25224 0.038258
material cost/expenditure 0.737094 0.665038 0.430378
material cost/sales 0.599224 0.522551 0.385999
Observations:
1)Material costs account for almost 3/4 th of the total expenditure by BHEL.
2)Purchasing,inventory and material costs have all increased by 10% to 20% YoY.
3)Purchasing costs are significant as they are almost half of the gross sales.
4)Material cost as a percentage of expenditure has reduced YoY from 74% to 66% indicating better material management po
5)BHEL invests significantly more in material costs than L&T i.e. 74% of its expenditure as against 43% of L&T.
6)Inventory costs of BHEL are also significantly higher at 27% as against 3.8% of L&T,indicating that BHEL maintains higher lev

2. tter material management policies.
st 43% of L&T.
that BHEL maintains higher levels on inventory.

3. L&T 2008-2009 2009-2010
Rs(crore) Rs(crore) % increase YoY
Purchasing cost 14603.59 13857.01 -5.112304577
Inventory cost 1470.51 1415.37 -3.749719485
Material Cost 14498.48 14280.12 -1.506088914
Sales 34045.04 36995.2 8.665461988
Expenditure 30739.22 33180.39 7.941548289
Ratios:
Purchasing cost/sales 0.4289491 0.37456238
Inventory cost/sales 0.0431931 0.03825821
material cost/expenditure 0.4716606 0.4303783
material cost/sales 0.4258617 0.38599926
Observations:
1)Since staffing and sub-contracting charges increased substantially during this period,company brought down its material an
2)Inventory costs form a very small percentage of sales indicating the business policy of L&T is moving from made to stock to
3)Material cost as a percentage of expenditure has reduced YoY from 47% to 43% indicating better material management po

4. ought down its material and purchasing costs to maintain its bottomline.
ving from made to stock to made to order.
material management policies.