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LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT
Report on Summer Training INVENTORY MANAGEMENT OF IFFCO AT IFFCO AONLA UNIT
Submitted to Lovely Professional University In partial fulfillment of the Requirements for the award of Degree of Master of Business Administration
Submitted by: Nipun Bhardwaj RT1903B38 REGD. No. 10906203
DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY Page No.1
PREFACE Summer Training constitutes an important part a good practice oriented management course. According to the syllabus of MBA, every student has to undergo 6-8 weeks summer training for exposure in any commercial industry or organization. So for the partial fulfillment of this requirement, I underwent my training at IFFCO AONLA , BAREILLY. Training is necessary to understand that how theoretical concepts are applicable practically. During my short stay in the organization, I was introduced to entire company. I visited many departments- Human Resources, Accounts, Administration, Regulatory and Safety, main plant, etc.
ACKNOWLEDGEMENT Expression of sincere gratitude is just a partial acknowledgment. The accomplishment of this project would have not been possible individually without the encouragement, assistance & valuable support from various sources. My vocabulary falls short of word to express my sincere gratitude to Mr. Deepak Yaday(account officer) under whose guidance I had opportunity to carry out the present work.
I am very thankful to Mr. K.K. Pandey (Sr. Training officer) & Mr. D. Kalia (Manager training) who support me & helped me throughout the project. I am also thankful to Mr. Lovy Agarwal who helped me throughout the project with his been supervision & guidance.
I am thankful to F & A staff and to all the employee of IFFCO who cooperated with me during my training period.
Last but not the least , I would like to express my gratitude to Mr. A.U.Ahmed (Assisitant Manager) and Mr. Sandeep Ghambhir(depty. Manager) for their help and guidance.
I owe a deep sense of gratitude to all the respondents who gave me valuable information for the project.
Nipun Bhardwaj MBA (F&C) LPU Phagwara
LIST OF CONTENTS 1) Introduction to topic 1) Need of the study 2) Objective of the study 3) Literature review 4) Research Methodology
5) Introduction about IFFCO 6) Objective of the company & its aim
7) Finance and account department 8) Inventory management 9) Material department 10) Purchase section 11) Payment against purchase 12) Delay in delivery 13) Material coding 14) Packing 15) Inspection of material 16) Accounting of raw material 17) Inventory control 18) Techniques of Inventory control 19) Analysis 20)
21) Conclusion 22) Recommendation 23)
INTRODUCTION TO THE TOPIC Page No.4
INVENTORY MANAGEMENT "Managing the level of inventory is like maintaining the level of water in a bath tub with an open drain. The water is flowing out continuously. If water is let in too slowly, the tub is soon empty. If the water is let in too fast, the tub overflows." The dictionary meaning of inventory is 'stock of goods'. The investment in inventory is very high in most of the undertakings engaged in manufacturing. The amount of investment is sometimes more in inventory than in other assets. About 90 percent part of working capital is invested in inventories. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. By proper planning it is possible for a company to reduce its levels of inventories to a considerable degree, without any adverse effect on production and sales, by using simply inventory planning and control technique. The reduction in excessive inventories carries a favorable impact on company's profitability. An efficient system of inventory management will determine. 1)
What to purchase
How much to purchase
From where to purchase
Where to store, etc. "Effective inventory management enables an organization to meet or exceed customers' expectations
of product availability while maximizing net profits or minimizing co. Inventories constitute about 60% of current assets of companies of India. The manufacturing companies hold inventories in the form of raw materials, work in process, finished goods, stores and spares, chemicals, lubricants etc.
Three motives for holding inventories:
To facilitate smooth production and sales operation (transaction motive),
To guard against the risk of unpredictable changes in usage rate and delivery time (precautionary motive)
To take advantage of price fluctuation (speculative motive)
Inventories represent investment of a firm’s funds. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider costs, return, risk factors in establishing its inventory policy.
Two types of cost are involved in the inventory maintenance:o “Ordering cost” requisition, placing of order, transportation, receiving, inspecting, storing, clerical staff, are fixed per order. Therefore, they decline as the order size increases. o “Carrying cost” warehousing, handling, clerical staff, insurances and taxes. Carrying costs vary with inventory holding. As order size increases, average inventory holding increases and therefore the carrying costs increase.
The firm should minimize the total cost (ordering+carrying). The economic order quantity of inventory level occur at point where total cost is minimum EOQ = √2AS/C, where A= annual requirement, S = ordering cost per unit, C = carrying cost per unit per annum
NEED OF THE STUDY 1)
How to make the inventory system more efficient and effective?
By which way the cost can be minimized that is invested in the inventory and how to regulate the whole inventory system in a better way.
How IFFCO can ensure the interrupted supply without making over
investment in the
inventories. As we know that IFFCO has large machineries due to which it has to retain too much stock of spares to avoid the interruption? 4)
As we know that IFFCO is a very big organization and it is typical to coordinate with all the employees who are working there. But for the effective inventory system there should be coordination between the store, purchase department and finance department. So what should be done for the coordination between the departments to make the inventory system effective?
To analyze the working of various departments that work in coordination with Finance department as payroll section, bill section, taxation section etc.
OBJECTIVE OF STUDY
"The main aim of study is to check the efficiency and effectiveness of inventory management system." Investment in inventory incurs a high cost. Therefore effective management is necessary to minimize the cost and ultimately increases profitability of an organization. A part from our main objective our main objectives are: 1)
To analyze the level of inventory management by IFFCO.
To analyze the investment in inventory management.
To give suggestion if any, regarding effective inventory management.
Or To give suggestions to ensures smooth and uninterrupted supply without making unnecessary investment of funds in inventory.
Literature Review 1) IFFCO INVEVTORY By K. Sharma(2008) During the year 2008-09 IFFCO produced 71.68 lakh(7.168 million) tonnes of fertiliser material; registering overall capacity utilisation of 98 percent for nitrogenous and 53 per cent for phosphatic fertiliser. It contributes 21.4% of country’s total nitrogenous fertiliser production and 27% of total phosphatic fertiliser production in the same period. Plant productivity during the year stood at 1373 tonnes/person. The Society has also achieved another important landmark in the field of energy conservation by clocking overall annual energy of 5.943 Gcal/tonne of urea. The Society has cloaked an all time high sales of 112.58 lakh tonne of fertilizers during 2008-09 2) Optimizing Safety Stock By Dave Piasecki (2009) Optimizing Safety Stock levels by calculating the magical balance of minimal inventory while meeting variable customer demand is sometimes described as the Holy Grail of inventory management (ok, forecasting is probably the true holy grail but I thought this sounded good). Many companies look at their own demand fluctuations and assume that there is not enough consistency to predict future variability. They then fall back on the trial and error best guess weeks supply method or the over simplified 1/2 lead time usage method to manage their safety stock. Unfortunately, these methods prove to be less than effective in determining optimal inventory levels for many operations. If your goal is to reduce inventory levels while maintaining or increasing service levels you will need to investigate more complex calculations. One of the most widely accepted methods of calculating safety stock uses the statistical model of Standard Deviations of a Normal Distribution of numbers to determine probability. This statistical tool has proven to be very effective in determining optimal safety stock levels in a variety of environments. The basis for this calculation is standardized, however, its successful implementation generally requires customization of the formula and inputs to meet the specific characteristics of your operation. Understanding the statistical theory behind the formula is necessary in correctly adapting it to meet your needs. Errors in implementation are usually the result of not factoring in variables which are not part of original statistical model
3) Do Inventory Management Systems Really Work? J.S Johar (2009)
Essentially, the systems work like this. First, bar codes or RFIDs tell scanners which items consumers are buying. The scanners transmit the information to computers by reading the bar codes and sending that information to the software. The software then interprets the numbers from the bar code and matches those Page No.9
numbers to the type of merchandise they represent. This allows the merchant to track sales and inventory -either at the checkout counter or with a hand-held scanner -- keeping the store abreast of which items are selling. Specialized software keeps track of how much stock is going out the door via purchases and how much remains on shelves and in the warehouse, giving managers a real-time picture of what's happening. The software also analyzes the data and makes recommendations for re-ordering strategies. Sometimes, they're programmed to automatically order at a certain point. It's important to note, however, that good systems leave room for human decision-making. The systems provide good information to support decisions but leave the final call up to managers. Once managers make a re-order decision, the system uses electronic data interchange to communicate its needs for additional merchandise to a vendor. Electronic data interchange is the process of sending and receiving data between two parties -- a retailer and a vendor, for example -- using data transmission lines, such as the Internet. The data is stored in a computer's memory bank and read by managers at both ends of the line. While inventory management systems offer retailers and vendors many advantages, there are some pitfalls. Because the system aims to keep a bare minimum of stock in store, retailers can be caught short if an item unexpectedly becomes a big seller. Retailers traditionally kept additional stock on hand -- known as buffer or safety stock -- to prevent that occurrence, but many have discontinued the practice. And, as with all technology, these types of systems are subject to the effects of a widespread computer crash or software failure
4) Enhance Inventory System Functionality Through Custom Reporting. By Dave Piasecki (2007) There are several truths that apply to business software packages regardless of whether you are using a $500 small business inventory tracking package or a multi-million dollar enterprise package. They don’t do everything you thought they would do. The standard reports available are less than optimal for your business needs. These truths do vary somewhat between the low-end and high-end systems in that the low-end systems are generally less buggy due to a much lower level of complexity and the high-end systems will certainly offer more functionality and more standard reporting. What is also true is that few companies take full advantage of the data available because they remain constrained by the standard reports or by the misconception that Page No.10
custom reporting falls under the responsibility of the IS department and requires a programmer or the software manufacturer to implement. Executives and managers at larger companies have long known the value of having programmers create custom reports where data is accumulated, manipulated and summarized giving them the information to make the decisions necessary to remain competitive. However, this level of information utilization is rarely achieved at mid and lower levels of an organization and is a complete mystery to smaller businesses. The primary reasons for this are that end-users are unaware of the reporting tools available and/or are unaware that it does not take a programmer to use these tools. There is also the misconception that custom reporting is a tool used for high level analysis and does not apply to day to day operations.
5) Team CIO Added on Jun 02, 2010 As the world's largest producer and distributor of fertilizer, IFFCO is responsible to over 40,000 cooperative societies located all over the country. It's a complex operation: just its marketing division is divided into five zones, 20 state offices, 68 area offices and 455 field locations and 177 retail outlets. Fertilizer is sent from plants and ports via rail and road and then stored in about 5,000 warehouses. Just the number of trucks used to move material from rake points to warehouses? 6,90,000. Its widespread operations and multiple variables created major challenges. Because a majority of IFFCO's data sources were in rural India, information moved through the system slowly, which resulted in delayed decisions. Another challenge was entering data of what was produced and dispatched from every plant, every day. The cooperative also needed to monitor inventory at each of its warehouses. "The release of government subsidies in thousands of crores is linked to this data," says S.C. Mittal, senior executive director management services and IT, IFFCO. "Many ERP systems were evaluated but none of them met our requirements." As he pushed the project through its final phases, Mittal met with multiple challenges, one of them being educating users. "The field-force is not computer literate," he says. "And since field officers are located in remote locations providing them with support was also a major challenge." Training programs and identifying computer-savvy area account officers who were trained in resolving hardware and softwarerelated issues went a long way in breaking these challenges. Today, the Rs 15-crore project has enabled faster decision-making, which allows salespeople to generate more revenue. From 2006 to 2008, IFFCO's turnover tripled but it added on only 18 marketing people. VIKAS has also created greater visibility. "The lead time for depositing remittances reduced from seven to Page No.11
three days resulting in huge interest savings," says Mittal. "This initiative simplifies the ever-increasing complexities of IFFCO's business processes due to its geographical spread 6) IFFCO plans to increase…….
By R.K. Mehta(2008) HMEDABAD: Indian Farmers Fertilizers Co-operative Ltd (Iffco) plans to invest Rs 1,000 crore to set up a 4.5 lakh tonnes per annum plant at Kandla for manufacturing phosphoric acid as a backward integration project. Iffco is also planning to add around 8 lakh tpa capacity to its existing 37 lakh tpa of urea capacity at an investment of about Rs 1200 crore. “The Kandla plant, which manufactures DAP and NPK fertilisers is currently dependent on imports for its main raw material, phosphoric acid. Due to the wild fluctuations in global prices, Iffco is proposing to go in for backward integration,” said D K Bhatt, marketing director of Iffco. Revenues from the Kandla plants are currently about Rs 2,500 crore. Iffco is finalising plans to increase its urea and ammonia production facilities too. “From August 19, Iffco temporarily stopped its urea production at Kalol plant so as to use the ammonia produced at Kalol for its DAP and NPK products at its Kandla plants. Global ammonia prices were recently hiked to $ 240 per tonne from $ 170 by a global cartel. This step taken by Iffco is to pressurise global producers to bring down the ammonia prices,” said Bhatt. To reduce its dependence on imported ammonia Iffco is now planning to increase its existing ammonia capacities. Bhatt said that Iffco has also submitted its bid to the Gujarat government, showing its interest to take a stake in the 500 MW power plant project to be set up at Chhattisgarh
7) Guide to Inventory Accuracy By Dave Piasecki(2009) Having problems with inventory accuracy? Implementing technologies such as bar coding systems, RFID, and pick-to-light are often assumed to be the solutions to inaccurate inventories. If properly implemented these technologies can help reduce errors, however, none of them will eliminate all errors, and a poorly Page No.12
implemented system can leave you worse off than you were before. Whether you are planning on implementing additional systems or not you should consider taking care of the basics first.
The Basics Attitude Process Definition Procedure Documentation Employee Training Employee Testing Monitoring Processes for Compliance Setting Standards Tracking Accuracy Accountability Count, Count, Count Reevaluate There is nothing revolutionary about my list of "The Basics", it's simply a series of steps which define a process for achieving higher levels of inventory accuracy. Your success or failure will be determined by your implementation of these steps. This is not something that should be rushed; throwing a quick fix approach together to alleviate an immediate need may be more damaging in the long run since the success of this plan requires a cooperative effort by many people within your organization. If your first attempt fails, you will find it more difficult to get a high level of cooperation for your next try. Take the time and do it right.
8) Process Scheduling
Automate, integrate batch processes across the enterprise with BMC www.BMC.com(2008) The purpose of this research was to provide recommendations to personnel at IFFCO, in examining the applicability of a Just- in-Time (JIT) inventory management system. JIT is a philosophy that can be applied to inventory management operations to reduce waste, achieve cost savings, maximize space, and improve quality of care. In the healthcare environment, a prime vendor program is essential to a successful JIT program. With the advent of a prime vendor program at IFFCO, Oakland, the advantages offered by JIT Page No.13
become available. With diminishing budgets, material managers must adopt innovative practices that reduce resource requirements, while providing high quality care. JIT is an innovative approach to inventory management that has been successfully applied in the healthcare industry. The authors examine JIT and how this philosophy can further the goals of the prime vendor program and increase quality of care.
Research covers the search for retrieval of information for a specific purpose. Basically research is the objective and systematic method of finding solution to a problem. The steps followed to conduct this study are as follows:-
(1) Formulating research problem – The problem under study viz. how effective are the measures applied by Iffco, Aonla to control the inventory is basically studied through analytical research. Material is important for the efficiency of the system. It is a matter of great importance for inventory department. Inventory department of IFFCO, Aonla is responsible for efficient inventory control. Thus the whole study is conducted under the guidance of officers of this department.
(2) Extensive literature survey – Many published studies, books or material on effective control of inventory were referred to for getting a true direction to research process.
(3) Data collection – The study is conducted through collection of data through surveys, interviews with officials etc. Personal interviews were conducted where a set of pre- conceived questions were asked from the officers of inventory department regarding material control policies adopted by them. Books of accounts of Aonla –I and Aonla – II are studied thoroughly to details about inventory stock, cost of material consumed, increase and decrease in stock in the last few years etc. Page No.14
Sample of material was obtained randomly. ABC analysis was used where sample of material was graded under three categories: A, B, C.
(4) Analysis and interpretation – The data about inventory is analysed to find out the effectiveness and efficiency of inventory policy. As regards the financial performance, the data about different financial indicators is analysed to calculate the different ratios and to draw the graphs.
This section deals with the methodology used in my study. It describes the
nature of study, data collecting
method, accounting procedure of inventories, valuation and verification of inventories etc. The data used in study was manually collected from the employees of IFFCO as well as from the net. Data were collected through the inventory software, databases, net and by asking questions to the employees. There is no manual coding. I have also included some financial data with the help of annual report. We were placed in different departments that are related to the inventory . We were told how the documentation in different departments like srv, po ,isrv , bills etc. are done .For collecting data we have asked questions to the different department heads
SOURCES OF DATA There were various sources for collecting the data. But I have collected data from some of the resources that are as following1)
Through asking the questions from the employees
Annual report of IFFCO
Accounting manual of IFFCO
From the stores
By the inventory software that is used in IFFCO Page No.15
INTRODUCTION ABOUT IFFCO During mid- sixties the co-operative sector in India was responsible for distribution of 70 percent of fertilisers consumed in the country. This Sector had adequate infrastructure to distribute fertilisers but had no production facilities of its own and hence dependent on public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to Page No.16
specifically cater to the requirements of farmers. It was a unique venture in which the farmers of the country through their own co-operative societies created this new institution to safeguard their interests. The numbers of co-operative societies associated with IFFCO have risen from 57 in 1967 to 38, 155 at present. Indian Farmers Fertiliser Co-operative Limited (IFFCO) was registered on November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative Societies act 1984 & 2002, the Society is deemed to be registered as a Multistate Cooperative Society. The Society is primarily engaged in production and distribution of fertilisers. The byelaws of the Society provide a broad frame work for the activities of IFFCO as a Cooperative Society. IFFCO had set up the KALOL plant for manufacture of Nitrogenous Fertiliser and KANDLA plant for manufacture of Phosphoric fertiliser. These plants commenced commercial production in the year 1974-75. IFFCO had emerged as Asia's largest Fertiliser Cooperative with its four modern sophisticated plants at KALOL and KANDLA in GUJRAT and PHULPUR and AONLA in UTTAR PRADESH. IFFCO is country's largest producer of nitrogenous and complex fertiliser with the total production capacity of 2.6 million tones.
IFFCO IS: 1. Largest producer of fertilisers in the country 2. Number of Plant Locations : Five 3. Installed Annual Capacity ('000 MT)
TOTAL 'P2O5 - 1712.8
Only Fertiliser Institution in the country to produce 68.47 lakh MT of fertilisers
and 93.24 lakh MT
of sales during 2007-08. 2. Contributed about 20% to the total 'N' and 25% to the total "P2O5" produced in the country
during the year 2007-08. 3. Fertilisers marketed through 39,564 Cooperative Societies and 15 Farmers Service Centers.
4. Service to the Farmers through a variety of programmes.
BOARD OF DIRECTORS The Directors of IFFCO Chairperson
Shri Surinder Kumar Jakhar
Shri N.P. Patel
Directors Shri Chandra Prakash Shri Halappa Basappa Achar Shri Kartick Chandra Sarkar Shri Harminder Singh Jassi Shri M.Gopal Reddy Shri Ankushrao R.Tope Managing Director
Dy. Managing Director-cum-Marketing Director
Shri Arabindo Roy
Jt. Managing Director
Shri Rakesh Kapur
Shri K.L. Singh
Director (Coop. Development)
Dr. G.N. Saxena
Shri R.P. Singh
OBJECTIVE OF THE COMPANY
The broad objectives of setting up this venture:1)
Promoting the fertilisers distribution system in the co-operative sector.
Ensuring availability of fertilisers at the farmer's doorstep.
Creating scientific awareness among farmers.
Promoting nation's growth through modern family techniques.
Improving agricultural productivity through balanced fertilizer application.
Strengthening cooperation distribution system.
To promote the activity for enriching the life of the rural. IFFCO has grown steadily since its inception today. It has emerged not only as the largest
fertiliser producing organization in India but also Asia's largest fertiliser co-operative. IFFCO started with two modern plants at a cost of Rs. 976 million. One ammonia and urea complex at Kalol and NPK plant at Kandla both in Gujrat.
MISSION IFFCO's mission is "to enable Indian farmers to prosper through timely supply of reliable, high quality agricultural inputs and services in an environmentally sustainable manner and to undertake other activities to improve their welfare" •
To provide to farmers high quality fertilisers in right time and in adequate quantities with an objective to increase crop productivity.
To make plants energy efficient and continually review various schemes to conserve energy.
Commitment to health, safety, environment and forestry development to enrich the quality of community life.
Commitment to social responsibilities for a strong social fabric
Performance Highlights for the Year 2009-10
81.98 Lakh MT Highest Production of Fertilisers
(Previous Best 71.68 Lakh MT in 2008-09)
43.24 Lakh MT Highest Production of Urea
(Previous Best 40.68 Lakh MT in 2008-09)
38.74 Lakh MT Production of NPK/DAP/NP
(Previous Best 32.26 Lakh MT in 2006-07)
118.27 Lakh MT Highest Sale of Fertilisers
(Previous Best 112.58 Lakh MT in 2008-09)
63.35 Lakh MT Highest Sale of Urea
(Previous Best 58.69 Lakh MT in 2008-09)
54.92 Lakh MT Highest Sale of NPK/DAP/NP
(Previous Best 53.89 Lakh MT in 2008-09)
Rs. 567.28 Crore Profit Before Tax
(Best PBT Rs. 807.09 Crore in 2002-03)
Rs. 401.10 Crore Page No.22
Profit After Tax
(Best PAT Rs. 557.2 Crore in 2002-03)
Rs. 16,809 Crore Total Turnover
(Previous Best Rs. 32,933 Crore in 2008-09)
1,608 MT per employee Plant Productivity
(Previous Best 1,669 MT in 2005-06)
7,885 MT per employee Highest Marketing Productivity
(Previous Best 7,397 MT in 2008-09)
BALANCE SHEET AND PROFI AND LOSS ACCOUNT OF IFFCO
10 YEAR’S PERFORMANCE HIGHLIGHTS OF IFFCO Page No.25
PRODUCTION IN IFFCO ( in Lakh MT) Page No.26
SALES IN IFFCO (in Lakh MT)
FINANCE AND ACOUNTS DEPARTMENT Page No.28
Each company is carried with a purpose of earning money. Money or capital being a scare as well as crucial resource in the working of any organization needs to be given prime importance. The financial resources have been planned and controlled in a proper and continuous manner. As among the most crucial decisions of a firm are those which relate to finance. Finance & accounts from an integral part of any organization. Proper and smooth functioning of this section is very vital for the organization to survive and grow. Finance functions are of two types: Managerial finance function Routine finance function
Managerial finance functions are so called because they require skilful planning, control and execution of financial activities. Routine finance functions on the other hand, do not require a great managerial ability to carry them out. They are chiefly and are incidental to the effective handling of the material finance functions. The various areas covering under the preview of subsections are as follows
INVENTORY MANAGEMENT Dictionary meaning of inventory is "detailed list of movable articles". The literary meaning of inventory is stock of goods. According to International Accounting Standards-2, inventory is a tangible property which is held:
For sale in the ordinary course of business;
In the process of manufacture for such a sale; For consumption in the process of production of goods and services for sale including
maintenance supplies and consumables other than machinery spares. Inventory Management involves the control of assets being produced for the purpose of sale in the normal course of the company's operations. The goal of effective inventory management is to minimize the total costs – direct and indirect - that are associated with holding inventories. However, the importance of inventory management to the company depends upon the extent of investment in inventory. The term 'inventory' includes: Page No.29
Inventory of Raw Materials:-
In the case of manufacturing concerns, various types of raw materials are being used in the production system. To ensure smooth production function and also to avoid any kind of production delays the concern has to keep inventory of raw materials.
Inventory of Stores and Spare Parts :This inventory consists of those
products which serve as accessories to the main products
manufactured for the purpose of sale. Bolts, nuts screws, clamps, etc., are the examples of stores and spares parts. Such spare parts are either bought from outside or manufactured in the concern itself.
Inventory of Work-In-Process (W.I.P.) :Sometimes the manufacturing system involves various processes for converting raw materials
into finished goods. As such, some materials might have been issued to the production process but might not have been completed as finished goods. This is known as work-in-process.
Inventory of Finished Goods :All goods manufactured during a particular period may not be sold immediately. These are to
be kept in warehouse. The idea is to uncouple the production and sales function so that it is no longer necessary to produce the goods before a sale can occur.
The application of managerial function on the basis of management principles in the field of inventory is termed as inventory management. Managerial functions are performed with respect to inventory; it may be called inventory management.
The objective of inventory management is to plan the optimum size of inventory which is neither excessive nor deficient and is timely available. For timely availability along with optimum size, there is need for controlling as well. Only on the basis of various control techniques one can ensures whether inventory would be timely available. But effective control in itself depends upon organizing and coordination. Thus, inventory
management comprises the functions of planning, controlling and organizing the types of all
goods, quantity, status, flow and time- sequence etc.
Need for inventory management Page No.30
Inventory management is an integral part of general management. Three important functional aspects of a business are closely related to inventory management. These are: 1)
Financial management Here the production management and marketing management are related to the physical aspect of
inventory management and; financial management is concerned with the financial aspect of the inventory management. In production management, production manager will always strive to have a large inventory of raw materials and of such a good quality as to ensure stable production operations. In marketing management, marketing manager aims at satisfying ever increasing demands for improved customers' service by having large inventory of inside goods. In financial management, finance manager will effort towards to keep investments in different types of inventory at a minimum possible level so that the business concern may earn maximum return.
MATERIAL DEPARTMENT Material Department is responsible for the proper handling of inputs and controlling of material inputs. Proper handling of input materials ensures the smooth running of plant. Material department recognizes the need of the input materials and arranges them for the plant. It includes the procurement, verification and controls of materials in right quantity and at
right time to facilities the production function. Material
management includes two important functions:
Storing and control of materials
That's why; it is divided into following sections:
Purchase section ( It is responsible for purchasing of materials )
Store section ( It stores the inputs)
These both sections are interrelated and perform their function on coordination. All purchases are to be made only by the materials department except purchases of petty item through some vouchers and Department Managers within the limits prescribed in purchase procedure. Material purchase indent should give following information: 1)
Quantity in stores
Average monthly consumption since last purchase for stock items
Maximum /minimum level Page No.31
Last purchase order reference
PURCHASE SECTION The purchase department is at the interface of internal and external department. Purchase department do enquiry about the inputs whether it is required or not. This enquiry is done in two ways that are: 1)
two stage After enquiry purchase department invites a tender. After confirmation of all terms and conditions
the department contacts the supplier and orders for the inputs. Thus it is responsible for purchasing of materials and other raw materials whatever is required by the organization. Purchase department is responsible for the delivery of right amount of material at the right time and at the right location to avoid the hampering of the production. Purchasing is distinct from buying. Purchasing involves the extra knowledge as the tenders, various vendors, their prices, comparison between them, after sale service, dispatching follow up and payment terms. The purchase department considers various things before purchasing the raw materials. 1. Information about the input material 2. Sources of material- vendor 3. Reasonable price of that material 4. All terms and conditions Indenter is that person which raises the indent.
PURCHASE PROCESS The purchase process can be expressed as following:
Material Purchase Requirement (MPR)
Single stage Enquiry
Two stage Enquiry
E- Procurement (15 days)
Manual (21 days)
Quotation Comparative Statement (QCS)
Technically Acceptable L-1 Bidder
Order (With approval of competent authority) PAYMANT AGAINST PURCHASE There are various modes of payment through which payment is done: 1-
Advance payment to supplier:-
If both the parties are agreed upon advance payment that is specifically provided in the contract order, only then advance payment is given. The advance payment to contractors shall be made against submission of Page No.33
bank guarantee in the Performa provided by IFFCO. Advance payment against indemnity bond shall not be released as provided in the purchase procedure. 2-
Full payment / 90% to 95% payment:In case the terms of payment provide for full payment or part payment against dispatch documents
through bank, the supplier will be negotiating the documents through the bankers. After the documents are received by the bankers, they are forwarding bank intimation along with a copy of the purchase order to ascertain that the invoice is raised for the material ordered and conforms to the other terms and conditions of purchase order. After the intimation from the bank is received the invoice of the suppliers will be scrutinized by the finance and account department for the following1. Purchase order number 2. Whether materials supplied are as specified in the purchase 3. Whether materials supplied are as specified in the purchase order. 4. Quantity supplied. 5. Price basis whether F.O.R. or Ex-works 6. Whether excise duty, sale tax and other taxes are as per the order. 7. Whether bank charges are claimed as per the purchase order. 8. Other terms and conditions of the purchase order. Where there is delay in supplying the material and the payment through bank
is 90% to 95%. It should be
ensured that penalty for delay, as provided in the purchase order, is recovered before releasing the balance payment. Where payment required to be made, a clarification is to be sought from materials department and proper approval taken for waiving of penalty or otherwise before retiring documents. The payments under the contracts must be regulated as per the expressed terms and conditions. Any payment not covered by the contractual terms and conditions should not be released. 3-
Full payment / Balance payment after receipt of materials:In case the purchase order provides the 100% payment after receiving of materials and accepted
payment is to be released after the MRR is received from the stores department. In case the purchase order dispatch documents and the balance payment after receipt of materials, the balance payment may also to be released after the MRR is received and it is confirmed that the material has been accepted after inspection and taken on charge. Before released of the payment, the invoices should be scrutinized as the case of payments released through bank. In addition it should also be verified whether all the items invoiced have been received, inspected and accepted per the MRR. 4-
Delay In Delivery
In any contract, the time and date of the delivery is the essence of the contract. In the event of delay in the Page No.34
execution of the order beyond the date of delivery as stipulated in the order, the project authorities may take following actions 1. Accept delayed delivery at price reduced by a sum equivalent to 0.5 % if the value goods not delivered for every week of delay or part thereof limited to a maximum of 5% of the contract value. IMPORTED MATERIAL Materials procured may be either indigenous or imported. For major projects the foreign contracts are normally finalized at head office level and payment against these contracts are made by the concerned unit. Where the order has been placed by the unit directly, they will make the payment to the foreign party by debiting to the appropriate advance account. If the payments are made through L/C against documents, the same shall be debited to advances to foreign suppliers account. On receipt of material at site, project engineer shall prepared the MRR and sent same to project accounts for clearing the supplier's advance account for material. Clearing and handling of imported material is the responsibility of material department on the arrival of ship the materials will be cleared with reference to the invoices and bills. For any short landing or breakage between the port of dispatch and port of destination, claim action shall be taken by them.
MATERIAL CODING It is very typical for the every organization to maintain the stock items in case of large number of items. It will be very typical to identify them at the time of requirement. So the items are coded to avoid confusion. For the coding of materials the account person assigns code for every item of store. Thus every item has a code that is called its material code. Material coding facilitates the account persons and store manager to maintain the transactions of the items whether of receiving or of issuing. Every item maintained by its code in the stock as well as in the store
accounting section. The item/material code remains same in stores and accounting section.
Whenever a transaction is done in store for the inventories the full details of that transaction is send to store accounting section also, because the computers of stores and accounting section are connected through Local Area Network. (LAN) In this way it is very comfortable task to maintain the inventories on the inventory software with the help of material coding. Advantages of codification 1.
Lengthy descriptions are replaced by a simple code.
It economizes space in forms and reduces clerical work.
Ease in identification of stores. Page No.35
It is comprehensive.
It facilitates, mechanized accounting.
Secrecy of description can be maintained.
It ensures clarity.
CODING There are different types of coding that are as follows: a)
Numeric: Each item is given a number.
Alphabetic: Each item is denoted by a combination of alphabets. If the alphabet selected indicates the
inventory sound when it is pronounced, it is known as mnemonic system. This helps in remembering the codes. c)
Alphanumeric: It is a combination of alphabets and numeric code.
Decimal System: It is basically a numeric system; sub-group may be indicated by decimals.
In IFFCO 12 digits coding is done. The various codes for the different materials are as follows: 1.
2 digits = for the plant location 3 digits = for the equipment 3 digits = for the material 3 digits = for the size and 1 digit = for the item identification.
Packing & Dispatch All packing, boxing and protection shall conform to the specification or requirements of the order. The supplier shall be held liable for the damage or breakage of the goods due to defective or insufficient packing. It will be according to term and conditions that are given already in the format. All goods shall be dispatched by rail/road freight paid and the railway receipt/lorry receipt shall be posted to the concerned officer of IFFCO.
Inspection of Material The material department shall coordinate with other departments and arrange inspection of material at vendor's shop prior to dispatch. Inspection of materials in other cases shall be carried out on receipt of materials at site. Only materials those cleared by the inspection will be taken on charge in stores. The person inspecting the material will sign on the stores receipt voucher in token of having inspected and accepted the material. Generally indenter is called upon for the inspection of the material. Sometimes inspection is done at the gate of IFFCO. Only after inspection material enters into the store. If there is any damage in the material or they are insufficient in quantity then rejection report is prepared. Its copies are distributed among all the parties which are involved in it.
Damaged/Short/Rejected Materials If the materials are received short or in damaged condition, there are some conditions in this regard.
In cases where the responsibility for the transit insurance is on IFFCO a claim should be lodged with
insurance company for the value of material plus incidentals. This insurance is done by IFFCO TOKIO GENERAL INSURANCE COMPANY. As soon as the shortage per damage of the materials is noticed the material department will lodge the provisional claim with the underwriters and pass on the relevant papers to the finance & accounts department for lodging monetary claim.
Where the responsibility for short supply or damages in transit is of the suppliers, the material
department should take up the matter with the supplier for arranging replacement. A report is prepared in this case. Its copies are sent to the supplier, purchase department and finance and account department.
STORE SECTION Store of any organization is of vital importance. It is the responsibility of stores to receive the material required by the organization's operations to keep it properly & to issue it as when required. The stores are divided in two subsections for greater flexibility like receipt and custody section. In IFFCO there are two stores. 1. Store A for Aonla-1( this store contains that spares which are used by Aonla-1) 2. Store B for Aonla-2 unit.( it contains mainly catalysts used by Aonla-2 ) Store has the following warehouses:
- Main Store - Cement godown - Petrol Pump - Cable yard - Chemical godown - Paint godown A.
RECEIPT SECTION:This section is responsible for receiving the materials and inspecting them. The process involves
following steps. 1)
The document regarding the material may be sent to the stores, purchase, concerned department.
But ultimately they have to be send to stores. The documents may be:
Goods receipt / railway receipt / challan
The particulars of the document are noted in the carrier
After the entry in the register, the document is given to an agent termed as handling contractor. He
receipt register (CRR).
will collect the material. 4) Consignment's cases are intact. If not he will ask for open delivery. Then he has to deliver the goods to stores. In case of damage he has to give a
certificate. Some consignment may without document i.e. door
delivery and is some cases it may be face to face delivery. 5) If any discrepancy is found during checking, the accounts section is informed for necessary action and getting claim from insurance company. The date of receipt is filled in CRR. 6) The next operation is filling the stores receipt vouchers (SRV). Here the quantity mentioned in challan and purchase order are compared, SRV Has 7 copies, two for accounts and one for each purchase, stores, indenter, master file & custody section. B).
CUSTODY SECTION:This section is responsible for proper keeping of materials and issuing them when required by
different department and contractors. The material received here is first checked as per SRV for every material there is a card. These cards are located in bins according to code of material is received in custody the card information is updated. When someone wants to issue certain material he has to fill the store issue voucher (SIV). Once the item is issued again information is updated in the kardex. When a particular part is returned then this Page No.38
received in stores, by internal stores return voucher (ISRV). After issuing the material the number of issue and the quantity issued is noted in SIV control registers. Custody section takes care of spares. ACCOUNTING FOR STORES General Outline of stores Function: a.
The authority of receipt, store and issue of all material is centralized in the materials department
subject to exception in permitted in certain cases. In certain cases a nominal stock of few consumable items can be permitted with uses departments such as maintenance, laboratory and administration department for meeting emergencies. In addition certain chemicals are permitted to be stored in production department due to the operational needs. 1.
The authority of storage of packing materials like bags is vested with bagging department. The
bagging department receives the material, gets it inspected in laboratory, issued the same for product bagging and maintains the stocks 2.
Maintenance of records for all quantitative transaction of packing material is the responsibility of
bagging department. Similarly the raw materials are handled by production department with all responsibilities in respect of quantity accounting. Functions of Store Accounting Section:The section dealing with accounting of stores in the finance department shall have following functions:1.
Accounting of receipts, issues, return and transfer of materials.
Accounting of imported materials for capital works and operations.
Associating with stores section for stock verification.
Valuation of stores items should do on weighted average basis.
Receipt /Issues/ Returns Transfer of Materials:a)
The second copy of the material receiving reports after pricing, shall be passed on to the stores
accounts sections to scrutinized the same with reference to store item code quantity of measure etc. and process it for accounting of receipt of materials. After issue / return of materials, issue section of stores department arranges data entry on the daily basis. Checklist processed is sent to stores accounting section for scrutiny in respect of store item code, cost / service code, expense code and unit measure etc. b)
The corrections and financial and financial adjustments are made to arrive at final check list after
scrutiny of final check list entry in priced store ledger is to be processed. The section shall ensure that all receipts, issues and
returns / transfer voucher raised by the stores section are finally posted in the price
store ledger. c)
For clearance of imported materials, amount deposited for custom duty in the PD account etc. Shall be
cleared against individual MRR's on receipt bill of entry. Page No.39
The issue notes shall be priced on the weighted average rate basis after accounting the last receipt of
material. After ascertaining the nature of expenditure, the job for which material is issued; an appropriate account code shall be given in accordance with the chart of account. e)
In case of material like steel plates etc. where materials are received on actual weight basis and the
issues are accounted are on theoretical weight basis as per sectional measurements, the quantity accounting shall be kept on weight basis. The difference in quantity in weight basis, if any, shall be adjusted to revenue / capital account, as then case may be, in consultation with consuming department, in case the
shortage is more than the consumption norms, the same should be recovered from the contractor.
For all issue notes relating to works contracts, one copy of the price issue notes may be sent to the
work accounts section to enable them to debit the contractor's account. A monthly abstract also be prepared and passed on to works accounts group for check. g)
Details for receipts and issue of materials received / issued on loan shall be maintained by the store
account section loan transactions shall be approved by the competent authority. It is the responsibility of material department to take action to square up the transactions within the reasonable time. h)
Inter unit transfer of material shall be accounted at cost basis freight and other incidental charges shall
be borne by the transferee unit. i)
Materials issued to contractors shall be priced at the monthly weighted average rate and debited to
materials issued to contractors account. The accounting for the difference between issue price and recovery price provided in the contract shall be Cleared by the accounts section dealing with the works. Recovery should be predefined basis and must be uniform. Insurance of Stock & Stores For stocks of ammonia, naphtha, general stores, bags, phosphoric acid, and
finished products held
at plants, insurance shall be taken to cover the risks arising out of fire explosion, riot, strike terrorism, malicious damage, earthquake, etc. The stock of finished products lying at different marketing warehouses should also be adequately covered through the warehousing agencies. According to the value of stores and finished products keeps on varying from time to time, insurance shall be obtained in the form of declaration policy whereby the average daily stock for each product held during the month shall be declared to the insurers in the first week of the next month. According to the declaration policy, the insured amount for each product shall be stated separately. The liability of the insurers is limited to the insured amount. At any time if it is found that the actual stock is more than the insured amount to avoid less amount of insurance. In case of a declaration policy, insurance premium is payable for minimum 35 % of the insured value. Before insurance is obtained, various categories of stores shall be reviewed with a view to select such items for which insurance is considered necessary. Verification of Inventories Page No.40
The officer of stores will coordinate the job of physical verification and the accounts officer in charge shall render all assistance to ensure that the physical verification of inventories is carried out as per the policy and the policy and the approved program. The store department will ensure that the posting in the Kardex are updated before the verification of inventories. Kardex contains all the information that is in the store. The inventories are classified in three categories for verification purpose. Raw material & Packing materials
Stores, Chemicals & Spare parts
The stocks of raw materials, packing materials and finished products are to be verified on quarterly basis by an independent surveyor by the society. No adjustments need be carried out in the books of accounts unless the discrepancies in liquid raw materials and solid raw material are in excess of 1% to 5% respectively. This is as per guidelines issued by the head office. In case of finished goods also the same principle applied except that no adjustments in the books of accounts shall be made. However the stock registers shall be adjusted on the basis of actual stock in order to replace the notional figures of stocks by more accurate estimate based on physical verification. The inventories for other items such as stores, spares, construction materials etc. are also verified every year keeping in view ABC analysis of stock items value and exercise of verification may be completed by March every year. For the purpose of verification of stores, chemicals & spare parts shall be classified in to A, B, C categories. Categories
Value (Rs. per unit)
Quantum of Verification
Above Rs. 50,000/-
10,001 to 50,000/-
Below Rs. 10,000/-
A team of stock verifiers shall prepare a stock verification sheet giving the kardex balance and the physical balance of each item covered in the stock verification. After filling up the particulars of the value and quality discrepancies with reference to the priced stores ledger balance, the stock verification sheets shall be forwarded to the materials department for scrutiny and reconciliation and adjustment in consultation with finance
department accepted shortage shall be processed for the approval of the competent authority.
RECONCILIATION AND ADJUSTMENT After each physical verification by the custodians of inventories and suitable adjustment action has to be taken. It is desirable to complete the physical verification work by March every year so that reconciliation/adjustment action can be completed within the year itself. Internal Check 1)
One set of document for receipts, issues and return of materials shall be sent to the accounting
section of finance department. Based on these documents, priced store ledger shall be prepared for each item for stores. The material code number between stores and accounts shall be identical. The priced store ledger shall provide value of each receipt, Issue and return transaction along with quantity ledger. The quantity balance appearing in priced store ledger shall serve as counter check for accuracy of bin card balance in store which is essential for proper functioning of inventory control system 2)
The priced store ledger shall not be maintained for large number of low value items such as
stationery, medicines, canteen stores etc. in this case the expenditure shall be charged to the appropriate expense account at time purchase. Quantitative record shall be kept by the concerned department and shall be produced as and when required for audit purpose. Inventory Control Inventory control is concerned with minimizing the total cost of inventory. The three main factors in inventory control decision making process are: 1.
The cost of holding the stock (e.g., based on the interest rate). 2. The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand. The third element is the most difficult to measure and is often handled by establishing a "service
level" policy, e. g, certain percentage of demand will be met from stock without delay. Page No.42
The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. A good inventory management policy should ensure smooth and uninterrupted supply without making unnecessary investment of funds in inventory. This requires that inventory management policy must balance the requirements of the following two opposing and conflicting ends: i) ii)
To maintain a large quantity for smooth operation and efficient customers' services. To maintain only a minimum possible inventory because holding costs and opportunity cost of funds
invested in inventory. OBJECTIVE OF INVENTORY CONTROL Scientific control of inventories should serve the following purposes: 1)
To provide the continuous flow of required materials, parts and components for efficient
uninterrupted flow of production. 2)
To minimize investment in inventories keeping in view operating requirements.
To provide for efficient store of materials so that inventories are protected from losses by fire and
threat and handling time and costs are kept at minimum. 4)
To keep surplus and absolute items to minimum.
To protect the inventory against deterioration, obsolescence and unauthorized use.
To ensure that finished goods are available for delivery to
customers just to
fulfill the orders.
TECHNIQUES OF INVENTORY CONTROL Reduction of surplus stock is an essential requirement inventory control. Various techniques are available to solve the various types of problems associated with inventory control:1) Min-Max plan 2) Order cycling system 3) Fixation of various levels 4) Use of control ratios 5) Review of slow and non-moving items 6) The ABC Analysis 1)
Min-Max plan: In this plan analyst lays down a maximum and minimum for each stock item. Minimum level
establishes the reorder point and order is placed for quantity of material, which will bring it to the maximum Page No.43
Order Cycling System: In this system, quantities in hand of each item or class of stock are reviewed periodically. In that, if it
is observed that stock level of a given item will not be sufficient till the next schedule review keeping in view of its probable rate of depletion, an order is placed to replenish its supply. 3)
Fixation of Various Levels:
Certain stock levels or fixed levels are given below:A). Maximum Level It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be overstocking. Maximum Level =
Re-ordering level + Re-ordering Quantity
(Minimum Consumption Minimum Re-ordering period) B). Minimum Level It represents the quantity of stock that should be held at all the time, stock level is normally not allowed facing below this level. Minimum Level = Re-order level - (Normal consumption Normal Re-order Period) C).
Safety Level:Normal issues of stock usually stopped at this level and made only under specific instructions. Safety
stock is a buffer to meet some unanticipated increase in usage. Safety stock level = Ordering Level - (Average rate of consumption Re-order level) OR = (Maximum rate of consumption – Average rate of consumption)Lead Time. D).
Re-ordering Level:When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again. Re-ordering level = Maximum Consumption Maximum Re-order period.
Use of Control Ratios: Inventory turnover ratio helps management to avoid capital being locked up unnecessarily. This ratio
reveals the efficiency of stock keeping. Inventory turnover ratio = Cost of materials consumed / Cost of average stock held during the period
Where, Cost of average stock = [Cost of opening stock + Cost of closing stock] / 2 Inventory turnover ratio [in days] =Days during the period /Inventory turnover ratio.
TECHNIQUE USED IN IFFCO FOR INVENTORY CONTROL The ABC Analysis: With the numerous parts and materials that enter into each and every industrial production, inventory control leads itself, inventory and foremost, to the problem of analysis. Such analytical approach is popularly known as ABC (ALWAYS BETTER CONTROL) Analysis. This Plan is based upon segregation of material for selection control. It measures money value i.e. cost significance for each materials item in relation to total cost and inventory value. The logic behind is that the management should study each item of stock in terms of its usage, lead-time , technical or other problems and its relative money value in the total investment in inventories. Critical, i.e. high value items deserve very close attention, and low value items need to be devoted minimum expense and effort in the task of controlling inventories. The ABC Reports are made: "A" inventory reports lists parts having little or no turnover. Turnover frequency is measured by an exposure index. We calculate the index by dividing a part's inventory quantity by its usage during the most recent 24 month period. "B" report shows the parts with more than a one year supply but less than a 2-year supply. "C" report lists the parts with more than six months supply but not more than one year. Criteria For Judging The Inventory System:While the over-all objectives of the inventory system is to minimize the cost to the firm the risk level acceptable to the management, the more proximate criteria for judging the are: Comprehensibility:Inventory system range from the utterly simple to the complex ones. Irrespective of how simple or how complex a system is, regardless of whether it is automated or manual, it should be clearly understood by all Page No.45
affected parties. The system must be properly explained to all concerned people so that its purpose, logic and rationale are transparent. This generates enthusiasm for the system and enhances its credibility. Otherwise it is likely to be perceived as a mysterious 'Black box' of dubious value. Adaptability:The questions raised in this context are: 1.
Is the system responsive to change?
Can new products, new situations and new requirements be handled by the system? A certain degree of flexibility and adaptability must be desired into the system to make it versatile.
Of course this cannot be and this should not be carried too far. The system must not provide for every possible and imaginable contingency. If it is developed with this ideal, it is likely to be a complex monstrosity. Remember the caveat that the design of any system should ordinarily take care of about 90% of the cases, leaving the balance 10% to be handled by hand. Timeliness:Inventories may suffer loss in value on account of a variety of factors. The more common sources of value decline are:
Obsolescence caused by changes in technology & shifts in consumer taste.
Physical deterioration with the passage of time.
Price fluctuation because of inherent volatility of certain commodities The inventory system should be capable of inducing timely action. It should provide adequate forewarning which triggers appropriate corrective steps
Inventory Software:In IFFCO the PSL software is used for the management of inventories. This software holds all the transactions of the stocks. So this software helps much in maintenance of stocks. It makes very easy to account persons to maintain the transactions of inventories. A part of this software is installed on the systems of the stores, whenever a transaction is made in the store, the details of that transaction is reaches to the systems of the store accounting section, because both the systems are connected in the local area network (LAN). So with the help of LAN environment it is very easier to accountants to retrieve the information regarding the transactions made by the stores. A part from this, this software has the variety of qualities which we can discuss with the help of menus of software. There are six different menus in this software these are as follows: 1. Data entry 2. Queries Page No.46
3. Reports 4. Processing 5. Calculator 6. Exit
ANALYSIS AONLA- I INVENTORY - GENERAL STORES It has the highest value in total inventory and plays significant role in increase or decrease of total inventory. It contains pipes, fittings, valves, lubricants, electric items, general items that plays a significant role in increase or decrease of its inventory. Total inventory of general stores was 1527.47 lakhs in 2007 that increased to 1678.51 lakhs i.e. by 9.89% and in 2009 it increased by 53% and then there was a decrease by 5.63% in 2010. PIPES In 2007 the inventory of pipes was 104.05 lakhs. That increased by 76.8% in 2008.this was due to drastic increase in its issue by 88.35%. In 2009 the inventory of pipes again increased by 31.63% and in 2010 it decreased by 15.76%.This was due to less receipt and increase in issue by 61.91%.this shows that from 2008 Page No.47
to 2009 inventory is increasing but issue decreases that means there was high receipts in this year i.e. more purchase of pipes inspite of its less usage because of which inventory turnover decreased in 2009 and holding period increased. FITTINGS Its inventory increased from 114.02 lakhs. to 136.05 lakhs. in 2008 i.e. by 19.32% then in 2009 it increased to 184.17 lakhs i.e. by 35.37%. this was due sudden decrease in issue by 84.97%. this was due to unused items of ESP project are received by stores and in 2008 CEP project was finished that caused in decrease in issue. In 2010 the inventory went down by 3.43% and issue also decreased by 4% due to which the inventoty turnover decreased and holding period increased as it is a inverse function of inventory turnover. VALVES As in above cases its inventory also first increased from 2007 to 2009 then decreased in 2010. Its inventory was 138.26 lakhs in 2007 that increased by 182.05% in 2008. In 2009 it was increased by 20.46% and in 2010 it again decreased by 8.01%. this was because its issue first increased in 2009 and then decreased in 2010. As there is decrease in usage of items the inventory turnover also decreased in 2010 and the holding period increased to 109.09 months that is quite a high time period. LUBRICANTS There was a sudden fall in the inventory of lubricants from 2007 to 2008 . It was 259.98 lakhs in 2007 and in 2008 it came down to 33.89 lakhs i.e. by 86.96%. in 2009 there was a increase in it by 105.28% and then in 2010 there was a fall in its inventory. Issue of it decreased by 35.49%in 2010 due to which its inventory turnover increased and holding period decreased. In 2010 its issue increased by 112.38% because of that its inventory came down in 2010 and inventory turnover increased and thus holding period decreased. ELECTRIC ITEMS Same is the case of electric items. Its inventory was 189.99 lakhs in 2007 that increased by 52.3% , in 2009 its increase was by 3.946% and in 2010 it went up by11.65%. There was decrease in issues. There was continuous increase in its inventory even when its issue was going down that shows there was regular purchase of these items even when they are not in so much use.This was done due to the reason that it takes many days in purchasing items and this inventory has to be maintained for sudden demand of these items. Due to high inventory and low issue its inventory turnover has a decreasing trend and its holding period increasing. GENERAL ITEMS
These are the items that are used all the plants and offices of this unit. Its inventory was 129.70 lakhs and it came down to 97.62 lakhs in 2008, then in 2009 and 2010 there was an increase in it. The issue values are decreasing with increase in inventory that shows there is not better utilisation of kept inventory. But due to the time taken by purchare process there may be shortage of these items when they are needed so there regular purchase is being done. Due to decrease in inventory turnover value its holding period increased. TOTAL GENERAL STORE it was 1269.36 lakhs in 2007 and was increased by 13.31% in 2008. It went up by 17.24% in 2009 and in 2010 there was a down fall in its inventory by 5.56%. although its average inventory for 2008, 2009, 2010 is in increasing pattern.Its issue was 1249.02 lakhs in 2008 that decreased by 41.23% and then increased by 13.01% . Because of above reasons the inventory turnover first decreased in2009 then increased in 2010 and the vice versa for holding period. Groups like FLANGS, BOLT,NUTS STUD, FASTENERS, BEARING, WELDING MATERIALS, HOSES BELT, TYRES, TUBES, LAB CHEMICALS, GLASS WEARS are having less inventory and are having almost same level of inventory and there issue are also less and of almost same values for the 3 years. BELLOWS, FILTERS, SPECIAL FITTINGS, CIRCLIPS, ABRASIVES, SAND, PAINT, SCRAP MATERIAL are having zero or very less inventory that does not effect the otal inventory very much. FIRE AND SAFETY Its inventory increased and then there was a sudden fall in 2009. Issue of it also decreased in 2009 but the inventory turnover remains same for 2008and 2009 i.e. .47. this is so because the recipts decrease d with issue. In 2010 inventory goes up but issue value came downbut the holding period was almost same. TOOLS AND SPARES It has a trend of decreasing inventory over these 3 years.its issue values are also decreasing, thats why its inventory turnover is decreasing. These are the items that are not of regular use but then also its inventory has to be maintained. GENERAL STORES – ESP FILTERS, WELDING MATERIALS, RINGS, GASKETS, SHEET, PA, GENERAL ITEMS are having no or negligible inventory and PIPES, FITTINGS, VALVES are having decreasing trend of inventory and trend of increasing issue .Thus inventory turnover increases and holding period decreased.
ESP total is decreasing . There was decrease by 99.4% in 2010 from 2009. And an increase in issue was 838.21% due to which its inventory turnover increased in 2009 and holding period decreased for that period. INVENTORY - SPARES IN STOCK It has the items that are used specifically by different plants. It has major inventory of AMMONIA, UREA, OFFSITE, PRODUCT HANDLING , STEAM & POWER. AMMONIA Inventory is increasing for 2008, 2009, 2010 is increasing constantly. Its inventory was 640.45 lakhs2007 That comes down by 4.56% in 2008. In 2009 it increases by 84.45% and in 2010 it goes up by 6.51% but issue is decreasing over these years so inventory turnover also decreased. UREA Its inventory increased till 2009 and then there was a sudden fall. Its issue also decreased. Thus its inventory turnover increased . there was a decrease by 1.53% in 2010. OFFSITE Its inventory has an increasing trend. In 2008 it increased by 18.02% , in 2009 by 3.01% and in 2010 by 20.1%. Its issue first increased from 2008 to 2009 and in 2010 it suddenly decreased due to that its turnover is more in 2009 . PRODUCT HANDLING It has a trend of decreasing inventory over 3 years i.e. there was less receipts but its issue increased by 70.4% in 2010 due to that its inventory turnover for this year increased. TOTAL SPARES It was 1703.15 lakhs in 2007 that decreased by 5.72% in 2008 , increased by 35.48% and in 2010 it increased by 12.5% . Its issue decreased in 2009 and increased in 2010 by 201.89%. thus its inventory turnover increased in 2010. INVENTORY - LOOSE TOOLS IN STOCK Its inventory is increasing over the yearsand issue is decreasing that shows purchases are being done even when its usage rate is low as it can be demanded any time . Thus its inventory has to be maintained anyways. INVENTORY - CATALYST IN STOCK
Its inventory was decreased by 86.62% in 2009 and by 33.75% in 2010. Its issue increased by 412.52% and then decreased by 99.89%. its inventory turnover increased in 2009. INVENTORY - STEEL It has decreasing inventory in 2008, in 2009 it increased by 136.98% and then there is a decrease in it. Its issue increased by 202.62% and then decreased by 73.55% in 2010 due to that inventory turnover first increased in 2009 and then decreased in 2010. INVENTORY - TIMBER Since there is very less usage of timber so, its inventory is kept very low and its issue is also less. It has a high value of issue in 2008 when there was CEP project running and after that it decreased. TOTAL INVENTORY In 2007 it was 3731.88 lakhs. It decreased by 2.23% in 2008 , increased by 14.28% in 2009 and in 2010 it increased by 5.33%. this increase was due to decrease in issue and increase in receipts . Its reason may be that the CEP project was finished in 2008 that results in decrease in issue and thus its inventory turnover decreased and its holdind period increased but with small rate.
AONLA –II INVENTORY - GENERAL STORE General items plays important role in increase or decrease of its inventory. Its inventory was 635.84 lakhs in 2007 that increased by 11.87% in 2008, again in 2009 it increased by 59.36%. This was due to increase in purchases and receipt due to completion of project CEP in 2008. In 2010 its inventory goes down by 5.577%, its issue decreased by 66.43%. This was due to fewer receipts. Due to above reasons its inventory turnover ratio decreased constantly over last 3 years and holding period increased. To make this at constant level its inventory should be kept at moderate level. PIPES Pipes plays a significant role as it has high inventory above all other items. In 2007 the inventory of pipes was 128.93 lakhs and it increased by 37.76% in 2008. In 2009 it increased by 86.68% and then in 2010 it decreased by 15.77%. Increase of inventory in 2008 was due to finished projects. In 2009 there was a drastic decrease in issue by 78.95% and it reduced by 20.36%. we see that even when issue is decreasing inventory is increasing due to which its inventory turnover decreased and holding period increased. Page No.51
FITTINGS Inventory of fittings increased. In 2008 it was increased by 19% , in 2009 by 48% and there was a negligible decrease in it in 2010. Inspite of this its issue decreased over last 3 years. In 2010 it decreased by 60.77%. Its inventory turnover has a trend of decreasing values. And it has a trend of increase in holding period. VALVES It has a trend if increase in inventory over last 3 years. In 2008 it was increased by 16.26%, in 2009 by 62.41% and in 2010 by 10.23%. Its issue decreased over 3 years. In 2009 it was decreased by 35.67%, in 2010 by 68.26%. Inspite of decrease in issue its purchase is increasing due to which inventory turnover decreased and holding period increased. ELECTRICAL ITEMS In 2007 its inventory was 52.9 lakhs that decreased by 5.03% in 2008, in 2009 increased by 9.612% and in 2010 it increased by 22.93%. Its issue increased by 13.97% and then Decreased by 4.55%. there was a small change in inventory ans issue so its inventory turnover is almost same for these years. GENERAL ITEMS
In 2008 its inventory increased by 22.08% , in 2009 by 32.804% and its issue
decreased by 69.08%. In 2010 its inventory goes down by 16.43% and issue increased by 94.2%. Its inventory turnover decreased to .11 in2009 and then increased in 2010 to .21. STRAINER, FILTERS, BELLOWS, ABRASIVE, SYNTHETIC PAINTS, INDUSTRIAL FUEL, LAB CHEMICAL, GLASS WEARS, FIRE AND SAFETY ITEMS ,INDUSTRIAL GASES are having zero or very low inventory. Same was the case with issues it was either 0 or very low. This shows that these items are either not in regular and frequent use or they are used in less quantity that is why its inventory is not required in heavy quantity. INVENTORY- GENERAL STORES – ESP It was 131.18 lakhs in 2007. There was a decrease in 2008 in its inventory by 1.56% and came down to 0 in 2009. Its issue increased by 6049.04% in 2009. This was to clear out all its inventory by issuing it. In this group pipes, flanges, fittings, valves plays significant role . but at the end inventory of all these items under ESP becomes 0. Total inventory of spares has a increasing graph over last 3 years. In 2007 it was 1258.53 lakhs and increased by 21.66% in 2008, 7.53% in 2009 and 13.99% in 2010. On the other hand its issue increased by 314.41% in 2009 and decreased by 76.8% due to which inventory turnover increased in 2009 and decreased to .09 in 2010. INVENTORY- SPARES IN STOCK Page No.52
AMMONIA It has the highest inventory above all other items under this group. Its inventory increased over last 3 years. In 2007 it was 782.15 lakhs, in 2008 it increased by 25.52%, in 2009 it increased by 4.54% and in 2010 by 14.55%. Its issue value increased drastically in 2009 by 823.34% and then there was a sudden fall in 2010 96.87%. inventory increased inspite of decrease in issue due to which the inventory turnover decreased . this shows there not proper utilisation of items under this group. UREA It also has trend of increasing inventory over last 3 years. In 2007 it was 306.11 lakhs that increased by 18.7% in 2008, by 37.01% in 2009 and by 9.45% in 2010. As in the case of ammonia it also has a increase in issue in 2009 and decrease in 2010. In 2009 it was increased by 35.03% and decreased by 2% in 2010. The fluctuation in inventory is not very high thus the inventory turnover has not been fluctuated very much. OFFSITE Its inventory was 99.77 lakhs in 2007 that was increased by 15/145% in 2008 and then a sudden fall in 2009 by 45.77% and then again decreased in 2010 by 4.56%. Its issue value has a increase in 2009 by 571.08% and in 2010 it decreased by 87.1%. PRODUCT HANDLING It was 55.39 lakhs in 2007 and increased by 1.55% in 2008. In 2009 it went down by 7.96% and in 2010 it increased by 23.7%. Its issue is lower than other items in this group. In 2009 issue decreased by 8.09% and then increased by 60.34% in 2010. Its inventory turnover decreased in 2010. LOOSE TOOLS IN STOCK Its inventory is constant over last 3 years , even the issue was in 2007 of low value. There was 0 or negligigle issue in 2009 and 2010, due to which inventory turnover is very low. INVENTORY - CATALYST IN STOCK In 2007 it was 406.55 lakhs and decreased by 42.04% in 2008, increased by 301.97% in 2009 and in 2010 it decreased by 47.12%. Its issue increased by 164.785 in 2009 and in 2010 it decreased by 8.123%. Its inventory turnover increased in 2009 and decreased in 2010. As holding period for catalyst should not be very high, for this its inventory should be maintained to desired level. INVENTORY STEEL-STRUCTURAL
It has increasing trend over the last 3 years. In 2007 it was 34.30 lakhs and increased by 20.44%in 2008, increased by 107% in 2009 and decreased by 14.06% in 2010. Its issue increased by 188.8% in 2009 , in 2010 it decreased by 73.07%. due to that its inventory turnover increased in 2009. INVENTORY CEMENT There is no inventory of cement at all that means there is no or very low usage of it. OVERALL INVENTORY The inventory was 2337.93 lakhs in 2007 and it increased by 7.88% in 2008. In 2009 it increased by 43.62% and in 2010 it decreased by 7.77%. Its issue increased by 89.01% in 2009 and decreased by 47.014% in 2010. Due to this its inventory turnover is more in 2009 and there was a decrease in 2010 in inventory turnover. Its holding period decreased in 2009 and then sudden increase in it in 2010. The inventory of Aonla I is much more than of Aonla II even though their production capacity is same . this is because some items are stored in aonla I that are issued for aonla II also.
TREND FOR TOTAL INVENTORY IN AONLA I AND AONLA II
TREND OF INVENTORY IN GENERAL STORES AND SPARES IN AONLA I AND AONLA II
8000 7000 spares(in lakhs ) aonla II
spares(in lakhs ) aonla I
general stores( in lakhs) aonla II
general stores( in lakhs) aonla I
1000 0 2007
INVENTORY OF AONLA I
loose tools chemicals& catalyst packingmaterial construction material
stock in process finished goods
3% 3% 1%
raw material stores and spares
loose tools 46%
chemicals & catalyst packingmaterial
construction material stock in process finished goods
1% 3% 1% 1%
2009 raw material storesand spares loose tools chemicals& catalyst packingmaterial construction material
stock in process finished goods
2010 1% 0% 3%
stores and spares loose tools
chemicals & catalyst
packingmaterial construction material 67%
stock in process finished goods
INVENTORY OF AONLA II
2007 0% 4%
raw material 16%
stores and spares loose tools chemicals & catalyst
construction material 42%
packingmaterial stock in process
1% 1% 0% 0%
2008 raw material stores and spares
loose tools chemicals & catalyst construction material packingmaterial 89%
stock in process finished goods
0% 4% 0% 2%
raw material stores and spares loose tools chemicals & catalyst
construction material 63%
packingmaterial stock in process
2010 0% 2% 0%
raw material stores and spares
loose tools chemicals & catalyst 19%
construction material 65%
packingmaterial stock in process finished goods
Lack of proper inventory management as demand persuade Page No.59
Need to work in such a way turnover ratio is good
As inventory of urea is most precious thing for agriculture. They have to proper go downs rural
Not using JIT and ERP.
IIFCO have five different plants in India. They are purchasing separately.
India is based upon agriculture. If the prices of raw material increase in that condition IFFCO cannot
hike the price easily.
Limitation In this study using the secondary data through internet and articles. These data based upon past
research. It may be relevant or not. Page No.60
Company does not give original document and data for study.
CONCLUSION The basic objectives of inventory management appear to be conflicting in nature.Inventories should increase Page No.61
or decrease in amount or time as related to sales requirement and production schedules. In most inventories a small proportion of items accounts for a very substantial usage(in terms of monetary value and annual consumption)and a large proportion of items accounts for a small usage.ABC analysis based on this empirical reality advocates in essence a selective approach to inventory control, which calls for a greater concentration of efforts on inventory items accounting for the bulk of usage value. Responsibility for control of inventories is of the top management, though decisions in this regard might will be based upon the combined judgment of the production manager, the sales manager and the purchasing manager. This is desired in view of the financial considerations involved in the problem and also because of need for coordinating the different kinds of inventories and conflicting viewpoints of different departments. Decisions relating to inventories should be taken by higher authority of the organization as well as departments. As in maintainance of inventory two types of cost incurres in it holding cost and carrying cost. So to lower it adequate level of inventory should be maintained. The items whose inventory are high but issue are less should be tried to reduce .
JIT (Just In Time) is a system in which material or the manufactured components and parts
arrive to the manufacturing sites or stores just few hours before they are put to use. The delivery of material is syncronised with the manufacturing cycle and speed. JIT system eliminates the necessity of carrying large inventories, and thus saves carrying and other related costs to the manufacturer. This system requires perfect understanding and coordination between the manufacturer an dsuppliers in terms of the timing of delivery and quality of the material. Poor quality material can halt the production. In IFFCO ERP should be applied. Enterprise resource planning (ERP) is an integrated
computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database ERP systems consolidate all business operations into a uniform. If all plants of IFFCO will purchase together then raw material will get at low cost.
IFFCO should use professionalism. IFFCO should export the product.
www.Iffco.nic.in Page No.63
Annual report 2010 of IFFCO
Accounting Manual of IFFCO
NIT of purchase department of IFFCO I.M. Pandey (2009) ,Financial Management,9th Ed. New Delhi: Vikas Publisher Ltd. Pp.624638.