COMPANY PROFILE

Indian Farmers Fertilizer Co-operative Limited

Type Cooperative

Industry Fertilizer, Agri-Products, Agricultural Development

Founded 3 November 1967

Headquarters IFFCO Sadan C-1, District Centre, Saket Place,

New Delhi-110017, India

Area served India

Key people Balvinder Singh Nakai, Chairman

Dr. Udai Shanker Awasthi, MD&CEO

Products Fertilizers

Revenue 211.9 billion (US$3.5 billion) (2010–11)[1]

Net income 7.914 billion (US$130 million) (2010–11)

Employees 8000

Website www.iffco.in

www.iffco.coop

www.iffcoindia.com

www.iffcolive.com

During mid- sixties the Co-operative sector in India was responsible for distribution of

70 per cent of fertilizers consumed in the country. This Sector had adequate

infrastructure to distribute fertilizers but had no production facilities of its own and

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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 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

Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on November

3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Co-

operative Societies act 1984 & 2002, the Society is deemed to be registered as a

Multistate Co-operative Society. The Society is primarily engaged in production and

distribution of fertilizers. The byelaws of the Society provide a broad frame work for

the activities of IFFCO as a Co-operative Society.

IFFCO commissioned an ammonia - urea complex at Kalol and

the NPK/DAP plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea

complex was set up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia -

urea unit at Aonla was commissioned in 1988.

In 1993, IFFCO had drawn up a major expansion programmed of all the four

plants under overall aegis of IFFCOVISION 2000. The expansion projects at Aonla,

Kalol, Phulpur and Kandla were completed on schedule. All the projects conceived

as part of VISION 2000 had been realized without time or cost overruns. All

the production units of IFFCO have established a reputation for excellence and

quality. Another growth path was chalked out to realize newer dreams and greater

heights through Vision 2010. As part of this vision, IFFCO has acquired fertilizer unit

at Paradeep in Orissa in September 2005. As a result of these expansion projects

and acquisition, IFFCO's annual capacity has been increased to 3.69 million tons of

Urea and NPK/DAP equivalent to 1.71 million tones. In pursuit of its growth and

development, IFFCO had embarked upon and successfully implemented its

Corporate Plans, ‘Mission 2005’ and ‘Vision 2010’. These plans have resulted in

IFFCO becoming one of the largest producer and marketer of Chemical fertilizers by

expansion of its existing Units, setting up Joint Venture Companies Overseas and

Diversification into new Sectors.

IFFCO has made strategic investments in several joint ventures. Indian Potash Ltd

(IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal, Oman India

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Fertilizer Company (OMIFCO) in Oman and Jordan India Fertilizer Company

(JIFCO) are important fertiliser joint ventures. As part of strategic diversification,

IFFCO has entered into several key sectors. IFFCO-Tokio General Insurance Ltd

(ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has formulated

new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free

insurance cover to farmers along with each bag of IFFCO fertilizer purchased. To

take the benefits of emerging concepts like agricultural commodity trading, IFFCO

has taken equity in National Commodity and Derivative Exchange (NCDEX) and

National Collateral Management Services Ltd (NCMSL). IFFCO Chhattisgarh Power

Ltd (ICPL) which is under implementation is yet another foray to move into core area

of power. IFFCO is also behind several other companies with the sole intention of

benefitting farmers.

The distribution of IFFCO's fertiliser is undertaken through over 39824 Co-operative

Societies. The entire activities of Distribution, Sales and Promotion are co-ordinate

by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing in the

field. In addition, essential agro-inputs for crop production are made available to the

farmers through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted

several institutions and organizations to work for the welfare of farmers,

strengthening cooperative movement, improve Indian agriculture. Indian Farm

Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development

Trust (CORDET), IFFCO Foundation,Kisan Sewa Trust belong to this category. An

ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to

promote e-culture in rural India. IFFCO obsessively nurtures its relations with

farmers and undertakes a large number of agricultural extension activities for their

benefit every year.

At IFFCO, the thirst for ever improving the services to farmers and member co-

operatives is insatiable, commitment to quality is insurmountable and harnessing of

mother earths' bounty to drive hunger away from India in an ecologically sustainable

manner is the prime mission. All that IFFCO cherishes in exchange is an everlasting

smile on the face of Indian Farmer who forms the moving spirit behind this mission.

IFFCO, to day, is a leading player in India's fertiliser industry and is making

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substantial contribution to the efforts of Indian Government to increase food grain

production in the country.

Objectives

To serve the cause of IFFCO’s mission as stated in the mission document

available on the homepage of IFFCO. To make strategic use of IFFCO’s

website to promote the mission of the organization to improve the welfare of

Indian farmers.

Provide information on all aspects of IFFCO to visitors from both within and

outside the country.

Extend IT enabled services to farmers and cooperatives to promote IT

penetration and improve IT comfort levels in rural India.

To evolve appropriate dissemination strategies for effective use of IT Enabled

Services in Rural India.

To extend e-services to cooperative members of IFFCO and in a phased

manner, extend e-commerce through the website.

Provide latest and reliable information and extend other services to all those

actively involved in the development of Indian agriculture and rural

development.

Provide necessary information / services for suppliers to IFFCO and achieve

e-procurement in a phased manner.

Vision

To augment the incremental incomes of farmers by helping them to increase

their crop productivity through balanced use of energy efficient fertilizers,

maintain the environmental health, and to make cooperative societies

economically and democratically strong for professionalized services to the

farming community to ensure an empowered rural India.

Mission

To provide to farmers high quality fertilizers in right time and in adequate

quantities with an objective to increase crop productivity.

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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 responsibility for a strong social fabric.

To institutionalize core values and create a culture of team building,

empowerment and innovation which would help in incremental growth of

employees and enable achievement of strategic objectives.

Foster a culture of trust, openness and mutual concern to make working a

stimulating and challenging experience for stakeholders.

Building a value driven organization with an improved and responsive customer

focus. A true commitment to transparency, accountability and integrity in

principle and practice.

To acquire, assimilate and adopt reliable, efficient and cost effective

technologies.

Sourcing raw materials for production of phosphate fertilizers at economical

cost by entering into Joint Ventures outside India.

To ensure growth in core and non-core sectors.

A true cooperative society committed for fostering cooperative movement in the

country. Emerging as dynamic organization, focusing on strategic strengths,

seizing opportunities for generating and building upon past success, enhancing

earnings to maximize the shareholders’ value.

ABOUT THE PLANTS

IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant

at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up

at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla

was commissioned in 1988.

In 1993, IFFCO had drawn up a major expansion programmed of all the four plants

under overall aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol,

Phulpur and Kandla were completed on schedule. All the projects conceived as part

5

of VISION 2000 had been realized without time or cost overruns. All the production

units of IFFCO have established a reputation for excellence and quality. Another

growth path was chalked out to realize newer dreams and greater heights through

Vision 2010. As part of this vision, IFFCO has acquired fertiliser unit at Paradeep in

Orissa in September 2005. As a result of these expansion projects and acquisition,

IFFCO's annual capacity has been increased to 3.69 million tons of Urea and

NPK/DAP equivalent to 1.71 million tones. In pursuit of its growth and development,

IFFCO had embarked upon and successfully implemented its Corporate Plans,

‘Mission 2005’ and ‘Vision 2010’. These plans have resulted in IFFCO becoming one

of the largest producer and marketer of Chemical fertilizers by expansion of its

existing Units, setting up Joint Venture Companies Overseas and Diversification into

new Sectors.

IFFCO has now visualized a comprehensive plan titled ‘Vision-2015’ which is

presently under implementation.

IFFCO has made strategic investments in several joint ventures. Indian Potash Ltd

(IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal, Oman India

Fertilizer Company (OMIFCO) in Oman and Jordan India Fertilizer Company

(JIFCO) are important fertiliser joint ventures. As part of strategic diversification,

IFFCO has entered into several key sectors. IFFCO-Tokio General Insurance Ltd

(ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has formulated

new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free

insurance cover to farmers along with each bag of IFFCO fertiliser purchased. To

take the benefits of emerging concepts like agricultural commodity trading, IFFCO

has taken equity in National Commodity and Derivative Exchange (NCDEX) and

National Collateral Management Services Ltd (NCMSL). IFFCO Chhattisgarh Power

Ltd (ICPL) which is under implementation is yet another foray to move into core area

of power. IFFCO is also behind several other companies with the sole intention of

benefitting farmers.

IFFCO received permission from the provincial government of Quebec to set up a $

1.6 billion urea plant. A decision in this regard was taken on March 26, 2014 by the

cabinet of the Canadian province and was notified on the official gazette of Quebec.

The proposed facility will have a production capacity of up to 1.6 million tons of urea

and 7,60,000 tones of diesel diesel exhaust fluid (DEF).The estimated project cost of

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$ 1.6 billion is based on the most recent feasibility study. La Coop fr an agri-food

organization in Quebec that is one of the project shareholders, has agreed to

purchase some 5, 00,000 tons of urea a year for distribution across the province,

Canada and several US states.

The distribution of IFFCO's fertiliser is undertaken through over 39824 Co-operative

Societies. The entire activities of Distribution, Sales and Promotion are co-ordinate

by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices

in the field. In addition, essential agro-inputs for crop production are made available

to the farmers through a chain of 158 Farmers Service Centre (FSC). IFFCO has

promoted several institutions and organizations to work for the welfare of farmers,

strengthening cooperative movement, improve Indian agriculture. Indian Farm

Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development

Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category. An

ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to

promote e-culture in rural India. IFFCO obsessively nurtures its relations with

farmers and undertakes a large number of agricultural extension activities for their

benefit every year.

About Management

The Representative General Body (RGB) which is the General Body forms the

supreme body that guides the various activities of IFFCO. The RGB consists of:

1. Members of the Board of Directors.

2. One delegate from each of the Member Societies holding shares of the value of

Rs.100 thousand and above; such delegate shall be as per the provisions of the

Multi-State Cooperative Societies Act/Rules as amended from time to time;

3. Delegates to be elected from amongst the representatives of Member-Societies

(other than Members holding shares of the value of Rs.100 thousand and above) in

each State/ Union Territory at the rate of one delegate for every 200 societies or part

thereof. However, the maximum number of such delegates from any State / Union

Territory shall not exceed 25. Such elected delegates shall be as per the provisions

of the Multi-State Cooperative Societies Act/ Rules amended from time to time.

The Board of Directors of IFFCO carry out all functions as specified under the Multi-state

Cooperative Societies Act/Rules. The Board of Directors frame policies, direct the various

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activities of the Society, and undertake any other activities conducive to overall growth and

development of Societies. The Board is headed by the Chairman.

The Managing Director is the Chief Executive of the organization with responsibilities for

general conduct, supervision and management of day to day business and affairs of IFFCO.

These directors are assisted by Functional Directors & Senior Executives who are

experts in various disciplines.

About Fertilizers

Types of Mineral Fertilizers

Some of the well known fertilizers used in India are:

Nitrogenous Fertilizers

Urea 46% N

Ammonium Sulphate (As) 21% N

Ammonium Chloride (ACl) 26% N

Calcium Ammonium Nitrate (CAN) 25% N

Phosphate & Potassic Fertilizers

Single Super Phosphate (SSP) 16% P2O5

Muriate of Potash (MOP) 60% K2O

Sulphate of Potash (SOP) 48% K2O

Di-ammonium Phosphate (DAP) 18 – 46

Rock Phosphate (RP) 16 - 20% P2O5

BIO - Fertilizers

Biofertilisers are capable of fixing atmospheric nitrogen when suitable crops are

inoculated with them. Biofertilisers are low cost, effective, environmental friendly

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and renewable source of plant nutrients to supplement fertilizers. Integration of

chemical, organic and biological sources of plant nutrients and their management

is necessary for maintaining soil health for sustainable agriculture. The bacterial

organisms present in the biofertiliser either fix atmospheric nitrogen or solubilise

insoluble forms of soil phosphate. The range of nitrogen fixed per ha/year varies

from crop to crop; it is 80 - 85 kg for cow pea, 50 - 60 kg for groundnut, 60 - 80 kg

for soybean and 50 - 55 kg for moongbean. 

SWOT ANALYSIS

Strength

Over the years, IFFCO has grown in strength from a modest membership of

57 societies in 1967-68 to 33260 as on March 31, 1997.

The society derives strength from the invaluable contribution made by its

talented and dedicated employees, who is well accomplished to deliver in the

dynamic economic scenario for gaining competitive advantage.

Weakness:

IFFCO are going only straight forward direction, i.e. produce only fertilizers.

The use of fertilizers is depending only on rain and irrigation facilities. If both

are not good it will directly affected to the use of fertilizers.

IFFCO is Multi State Co-operative Society registered under Bombay Co-

operative Societies Act (Act 7 of 1925) and under Multi Unit Co-operative

Societies Act 2002. Being a Co-operative Society it cannot issue the equity

share capital as company.

Pricing policy of the IFFCO has totally formulated by the government of India.

IFFCO has not any power to decide the price of its fertilizers. IFFCO cannot

sale its fertilizer at higher price than price decided by central government.

IFFCO is the co-operative society so it could not sale its fertilizers directly to

the customers.

Opportunity:

Expand the market by globalization.

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IFFCO has a good distribution network by which he will sale pesticides, bio

fertilizer, research seeds etc

Sourcing raw materials for production of phosphate fertilizers at economical

cost by entering into Joint Ventures outside India.

In India more than 65% population are live on agriculture and the fertilizer is

the main source of increasing the agriculture productivity and the production

of Indian agriculture.

Government are now more concentrate on agriculture by more and more

irrigation facilities like Narmada Saradar Sarovar Yojana, Suzlam-Suflam

Yojana, Micro Irrigation with 50% subsidy etc.

Threat:

When any change in crop patent it will directly affected to the use of fertilizers,

The fertilizers use is directly depending on the irrigation facilities, if irrigation is

less than the use of fertilizers is also less.

IFFCO run by share capital of co-operative branches if branches are become

weak it will directly affect to the IFFCO.

Increasing input costs of feed stock i.e. Fuel Oil/LSHS/NG/Naphtha.

Slow growth in urea consumption during last 7-8 years.

Globalize competitive scenario in industrial products and reducing trend of

import duties and the threat from dumping of low products.

Inventory Software

There is a very powerful software in IFFCO for inventories of the various items. 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,

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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.

Apart from this, this software have 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:

Data Entry Queries Reports Processing Calculator Exit

Data Entry Menu

The very first menu that is data entry is used for the various types of entries of transactions. In the data entry menu there are several options shown in above diagram.

Document Entry:

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Data Entry

Document Entry Adjustment SIV Adjustment ISRV

Physical verification

Entry of Surplus

SRV

SIV

ISRVSAV

This option is used to enter the data in various type of documents like SRV, SIV, ISRV, STV(in), STV(out) etc.

Adjustment Entry:

With the help of this option we may easily make the adjustments in the stock issue voucher (SIV), due to any previous adjustment.

Adjustment ISRV:

This option of data entry menu has the same working in issue stock return voucher (ISRV).

Physical Verification:

In case of verification of stock the person responsible for stock verification estimates a range of items for verification and after verify the selected range of items, they punched the quantity verified or lock the verified quantity till the next verification.

Entry of Surplus :

This option is used for adjust the surplus items which is declared by the plant. The surplus items means, the items which are exceeds from the records. So in case of this situation the accountants makes a entry @ of 1 Rupee per unit of items.

Reports Menu

12Reports

Summary A/C head wise :

This option creates the summary reports of all the A/Cs in respect of A/Cs heads like

Inventory spares ( Ammonia, Urea etc. ) Loose Tools Chemicals General Stores Construction Materials etc.

Monthly report before PSL run:

This option creates the monthly report of all the documents like – SIV, ISRV, SAV, STV (in), STV (out) etc. so that the account persons may check whether the documents are correct or not., because if there is any mistake in any document and PSL run is performed it will create the wrong final reports.

Monthly report after PSL run:

The working of this option is same as the previous option but the difference is that the reports made after the PSL run are more accurate updated and non volatile in nature.

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Summary A/C head wise Month report before PSL run

PSL JV

Kardex

Code wise inventory status

Month report after PSL run

Inventory consumption

PSL JV :

After processing of PSL run all the documents becomes updated and all the transactions also gets updated. So that by this option we can see all the journal voucher of the entries of inventories.

Kardex:

The kardex is the very useful tool for showing the current status of all the items. Kardex shows the update inventory and also shows the past status of every past tears. The accountant may see the past status as on any past date

Inventory consumption:

This option of the report menu shows the data regarding the consumption of materials according to the date. We can see the consumption of a particular item. This report helps in forecasting of material purchasing for the future consumption of the materials.

Code wise inventory status:

This option creates a report inventory code wise. We can create report for selected codes.

Queries Menu

This menu has single option that is brows inventory master. In this option we may see the status of various materials or items.

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Queries

Brows Inventory Master

As the name of this menu, we can perform the query task, on the basis of material codes, that are of ten digits number. This option is very helpful in search of any particular transaction in inventories. In a query task we are supposed to enter the material code in the material code box and then click over the retrieve button. As soon as we click over the retrieve button the whole in formation regarding that code is appears on the screen.

The appearing statement contains the material code, material description, opening quantity, closing quantity, values, PSL rate that is the per unit price and also the location of that material.

Processing Menu

Processing is the most important task of this software, because all the reports which are forwarded to the concerning authorities and are the basis for the further actions are made only after the processing or the PSL run. PSL processing makes update all the documents.

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Processing

Put A/C group in IMPSL Process I

Reverse stock for PSL kardex mismatch

Reverse stock for physical kardex mismatch

PSL Process I:

The option process I updates and calculates the values for all documents and makes available to create the final reports. Once a PSL run is processed the data can not be changed, So that this task is very sensitive so the operating person should have the great care and responsibility in processing task.

Put A/C group in inventory Master:

This option also a processing task when we executes this option it assigns the A/C group to all the inventory / item codes so that these codes may link to a particular A/C group.

Reverse stock for PSL kardex mismatch:

It is very important processing because it creates a list of all the items which are mismatching in respect of units / quantity between the

PSL and kardex. If there is any mismatch in PSL and Kardex the report shows those mismatches on the screen.

Reverse stock for physical kardex mismatch:

This option creates a list of mismatches of karedx and physical verification. This processing performed once in year, because the physical verification of the inventories is done once in a year.

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THEORETICAL ASPECT

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:

1. 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.

2. 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.

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3. 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.

4. 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

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)        Production management

2)        Marketing management

3)        Financial management

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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.

PURPOSE-BENEFITS OF HOLDING INVENTORIES:

Although holding inventories involves blocking of firms funds and the cost of

storage and handling, every business enterprise has to maintain a certain level of

inventories to facilitate uninterrupted production and smooth running of business. In

the absence of inventories a firm will have to make purchases as soon as it receives

orders. It will mean loss of time and delays in execution of orders, which sometimes

may cause loss of customers and business (stock out). Therefore also needs to

maintain inventories to reduce ordering costs and avail liquidity discounts etc..

Generally speaking, there are three main purposes or motives of holding inventories.

1. THE TRANSACTION MOTIVE: Which facilitates continuous production and timely

execution of sales orders.

2. THE PRECAUTIONARY MOTIVE: Which necessitates the holding of inventories

for meeting the unpredictable changes in demand and supplies of materials.

3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking

advantage of price fluctuations, saving in the ordering costs and quantity discounts

etc.

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RISK AND COST OF HOLDING INVENTORIES:

The holding of inventories involves blocking of a firm’s funds and incurrence

of capital and other costs. It also exposes the firm to certain risks; the various parts

risks involved in holding inventories are as below

1. CAPITAL COSTS

Maintaining of inventories result in blocking of the firm's financial resources.

The firm has therefore to arrange for add both the cases the firm incurs a cost. In

the former case, there is an opportunity cost of investment while in the latter

case; the firm has to interest to the outsiders.

2. STORAGE AND HANDLING COSTS

Holding of inventory is also involves costs on storage as well as handling of

materials. The storage costs include the rental of the godown, insurance initial

funds to meet the cost of inventories. The funds may be arranged from own

resources or from outsider. But in charges etc

3. RISK OF PRICE DECLINE

There is always a risk of reduction in the prices of inventories by the suppliers

in holding inventories. This may be due to increased market supplies,

competition or general depression in the market.

4. RISK OF OBSOLESCENCE

The inventories may become obsolete due to improve technology, changes in

requirements, change in customers taste etc.

5. RISK DETERIORATION IN QUALITY

The quality of the materials may also deteriorate while in the inventories are

kept in stores.

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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.

  3. 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.

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) To maintain a large quantity for smooth operation and efficient customers'

services.

ii)     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.

3)      To provide for efficient store of materials so that inventories are protected from

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losses by fire and threat and handling time and costs are kept at minimum.

4)      To keep surplus and absolute items to minimum.

5)      To protect the inventory against deterioration, obsolescence and unauthorized

use.

6)      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 level.

2) 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.

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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.

4)      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

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Inventory turnover ratio [in days] =Days during the period /Inventory turnover

ratio.

5.Review of slow moving and non- moving items:

Stock turnover ratio should be as high as possible. Loss due to obsolescence be

eliminated or these items used in some profitable work.. Slow moving stock should

be identified and speedily disposed off . The speed of movement should be

increased . The turnover of different items of stock can be analyzed to find out the

moving stocks.

The percentage of slow moving stores = Slow moving stores / Total

Inventory

6.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.

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Practical aspect

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 affected parties. The system must be

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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?

2. 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

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Ratios

Inventory turnover ratio: 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

2013-14 15.7

2012-13 11.9

2011-12 10.46

Inventory of finished goods

2013-14 0.44

2012-13 0.30

2011-12 0.19

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Research Methodology

Research methodology is a systematic way, which consists of series of action steps,

necessary to effectively carry out research and the desired sequencing to these

steps. The marketing research is a process of involves a no. of inter related

activities, which overlap and do rigidly follow a particular sequence. It consists of the

following steps:

Formulating the objective of the study

Designing the methods of data collection

Selecting the sample plan

Collecting the data

Processing and analyzing the data

Reporting the findings

1. OBJECTIVES OF THE STUDY:

To study the inventory management of IFFCO.

To study the growth and potential of both the companies.

2. SOURCES OF DATA :

Primary Data has not been used.

Secondary Data has been collected from the following sources :-

I. Annual Reports

II. Internet

III. Journals

Information provided on the companies’ website.

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3. RESEARCH DESIGN

ANALYTICAL research design is adopted in this report.

Limitations :

Efficient inventory control methods can reduce but cannot eliminate business

risk.

The objectives of better sales through improved service to customer;

reduction in inventories to reduce size of investment and reducing cost of

production by smoother production operations are conflicting with each other.

The control of inventories is complex because of the many functions it

performs. It should be viewed as shared responsibilities.

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DATA ANALYSIS

Inventory turnover ratio

2013-14 15.7

2012-13 11.9

2011-12 10.46

2013-142012-132011-12

Interpretation:

Inventory turnover ratio helps management to avoid capital being locked up

unnecessarily. This ratio reveals the efficiency of stock keeping. The inventory

turnover ratio of iffco is increasing in the last three year at a rapid speed which

is good sign for the company.

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Inventory of finished goods

2013-14 0.44

2012-13 0.30

2011-12 0.19

2013-142012-132011-12

Interpretation:

inventory of the finished goods is increasing in all corresponding years but the

increase is in small margin.

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ABC analysis

Categories Values(Rs. Per unit) Quantum of verification

A Above 50000 100%

B 10001 to 50000 70%

C Below 10000 25%

Interpretation:

ABC analysis indicates A category have inventory of Rs 50,000 and above and

have 100% verification of inventory. B category indicates items which has value

between 10,000 to 50,000. C category indicates items which have value below

10,000 and 25% of inventory comes under this category for verification.

FINDINGS

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Inventory turnover ratio helps management to avoid capital being locked up

unnecessarily. This ratio reveals the efficiency of stock keeping. The inventory

turnover ratio of IFFCO is increasing in the last three year at a rapid speed

which is good sign for the company.

ABC analysis is showing the different rates and value of the inventory

according to which a certain percentage is assigned to it which is used for the

verification of the inventory.

CONCLUSION

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More effective exercise should be followed of vigilance against imbalance of

raw material and work in progress which tends to limit the utility of stocks.

To change in design to maximize use of standards parts and components,

which are available off the shelf.

Items which are in excess of the needed consumption can be considered as

surplus items, such items are lying in inventory beyond 4 years. For the

efficient Inventory Management the period for this should be Reduced

More efforts should be made to completion of unfinished production jobs to

get them in to sellable condition.

The software holds all the transactions of the stocks. So software helps much

in maintenance of stocks. IFFCO should use Inventory software to maintain

the transactions of inventories and to manage the Inventory

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