inventory control in iffco

SUMMER TRANING PROJECT REPORT ONINVENTORY CONTROL IN

IFFCO AT AONLA UNIT

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION

G. L . BAJAJ INSTITUTE OF TECHNOLOGY

ANDMANAGEMENT , GREATER NOIDA

SUBMITTED TO : SUBMITTED BY :

Mrs. DEEPA GUPTA SHIKHAR KUMAR SINGH

Professor, MBA M.B.A. 2011 - 13

1

ACKNOWLEDGEMENT

Through this acknowledgement, I express my sincere gratitude towards

all those people who have helped me in the preparation of this project, which has been

learning experience.

I appreciate the co-operation by the management and staff of IFFCO for giving me the

opportunity to get trained in their office.

I would like to thank the Faculty Guide: Mr. Nitin tripathi, and the other Faculty

members, the Librarian and the administrative staff of IN GLBITM, Greater Noida, for

their support.

Finally, I express my sincere thanks to Mr. D. Kalia, who guided me through out the

project and gave me Valuable suggestion and encouragement.

SHIKHAR KUMAR SINGH

MBA 2ND Year

2

DECLERATION

I ,Shikhar Kumar Singh , Roll no-1119270042, student of MBA of G L Bajaj Institute

Technology And Management, Greater Noida , hereby declare that the project report on

“Inventory control in IFFCO ” is an original and authenticated work done by me. The

project was of 2 months duration and was completed between 05-06-2012………to 04-08-

2012………

I further declare that it has not been submitted elsewhere by any other person in any of the

institutes for the award of any degree or diploma.

Name of the student :

Shikhar kumar Singh

Date :

3

INDEX

PAGE NO.

1. Introduction to topic 05

2. Introduction about IFFCO 07

3. Need of the study 37

4. Objective of the study 38

5. Methodology 39

6. Data Analysis and Interpretation 106

7. Findings of The Study 109

8. Suggestions And Recommendations 115

9. Bibliography 121

10. Annexure 122

4

INTRODUCTION OF THE TOPIC

INVENTORY CONTROL

“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 CONTROL. A proper planning of purchasing, handling,

storing and accounting should form a part of INVENTORY CONTROL. 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 CONTROL will determine

1) What to purchase

2) How much to purchase

3) From where to purchase

4) Where to store, etc.

5

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 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.

6

IFFCO IS:

1. Largest producer of fertilisers in the country

2. No. of Plant Locations : Five

3. Installed Annual Capacity (‘000 MT)

a. UREA - 4242.2

b. NPK/DAP - 4335.4

c. TOTAL ‘N’ - 2628.2

d. TOTAL ‘P2O5 - 1712.8

4. Only Fertiliser Institution in the country to produce 68.47 lakh MT of fertilisers

and 93.24 lakh MT of sales during 2010-11.

5. Contributed about 20% to the total ‘N’ and 25% to the total “P2O5” produced in the

country during the year 2010-11.

6. Fertilisers marketed through 39,564 Cooperative Societies and 158 Farmers

Service Centers.

7. Service to the Farmers through a variety of programmes.

7

BOARD OF DIRECTORS

The Directors of IFFCO

Chairperson – Shri Surinder Kumar Jakhar

Vice-Chairperson- Shri N.P. Patel

DIRECTORS

Shri Chandra Prakash

Shri S.L. Dharme Gowda

Shri Kartick Chandra Sarkar

Shri Harminder Singh Jassi

Shri M.Gopal Reddy

Shri Ankushrao R.Tope

Managing Director – Dr. U.S.Awasthi

Dy. Managing Director-cum-Marketing Director – Shri D.K. Bhatt

Dy. Managing Director – Shri Rakesh Kapur

Director (Technical) - Shri V.K. Bali

Director (Coop. Development) – Dr. G.N. Saxena

Director (HRD) – Shri S.K. Mishra

8

OBJECTIVE OF THE COMPANY

The broad objectives of setting up this venture:-

1) Producing fertilisers.

2) Promoting the fertilisers distribution system in the co-operative sector.

3) Ensuring availability of fertilisers at the farmer’s doorstep.

4) Creating scientific awareness among farmers.

5) Promoting nation’s growth through modern family techniques.

6) Improving agricultural productivity through balanced fertiliser application.

7) Strengthening coopen distribution system.

8) 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.

9

IFFCO’s MAIN AIM

“Strengthening management and participatory character of the Indian Cooperative

Movement by using duly tested and appropriate consultancy, advisory and technological

interventions sourced from within the country and abroad and in accordance of the

Cooperative Principles and in harmony with the law and culture of the land.”

10

ORGANISATION CHART OF IFFCO

11

Board of Directors

Chairman & Vice Chairman

Managing Director

Director

Marketing

Director

Finance

Sr. Executive Director Technical

Executive

Director (P& A)

Executive Dir. Planning & development

INVESTMENT OUTSIDE IFFCO

1. Indian Potash Ltd (IPL)

IFFCO’s Equity : Rs. 2.68 Crore

Percentage of Equity held : 34% ( Rs. 32.4 million)

Paid up capital (Mar 31, 2000) : Rs 95 million

Activity : Marketing of Potash and imported fertilisers

IPL is the Indian canalizing agency for domestic potash requirements.

2. Industries Chimiques du Senegal (ICS) I & II

Percentage of Equity held : 19.09 %

Plant Site : Darou, Senegal

Products : Rock Phosphate, Phosphoric Acid and NPK Fertilisers

Activity : Phosphoric Acid at Darou (Senegal)

Production capacity : 1.5 million TPA

Paid up capital (Mar 31, 2000): Rs 6.5 billion

12

3. IFFCO - TOKIO General Insurance Company Ltd. (ITGI)


Percentage of Equity held : 72.64%

Activity : General Insurance

Corporate Office : New Delhi

Paid up capital (Mar 31, 2006) : Rs 2.2 billion

4.Oman India Fertiliser Company (OMIFCO)


Percentage of Equity held : 25%

Plant Site : Sur, Oman

Products : Ammonia, Urea

5. Indo Egyptian Fertiliser Co. (IEFC)

Project Cost : USD 325 million

IFFCO’s Paid up Equity : Rs. 38.89 Crore

Debt : Equity : 70 : 30

IFFCO’s Equity : 76%

El Nasr Mining Co. : 24%

Activity : Phos. Acid Plant

13

6. National Commodity and Derivative Exchange (NCDEX)


Percentage of Equity held : 12%

Redeemable Preference Share Capital : Rs. 10 Crore

Activity : On Line Trading in commodity futures

7. National Collateral Management Services Ltd. (NCMSL)

IFFCO’s Equity : Rs. 4 Crore

Percentage of Equity held : 13.33%

Activity : Collateral Risk Management Solutions

8-IFFCO Chhattisgarh Power Ltd

Project Cost : Rs. 6265 Crore


Debt : Equity : 70 : 30

IFFCO Equity : 74%

CSEB : 26%

Activity : Power Genen (1320 MW)

14

9. Kisan International Trading FZE (KIT)

Investment : Rs. 11 Crore*

Location : Dubai

Activity : Special purpose vehicle (SPV) for shipping, logistics and investments in

new overseas Joint Ventures.

* Includes Rs. 9.80 crore towards 9 bonus shares received during 2010-11.

10. Jordan India Fertiliser Company (JIFCO)

Project Cost : USD 580 Million

IFFCO Equity : 52% (Rs. 2.08 Crore)

JPMC Equity : 48%,

Activity : Phos. Acid Plant

11. IFFCO Kisan Sanchar Ltd. (IKSL)

Paid up Share Capital : Rs. 5 Crore

IFFCO Equity : Rs. 3.65 Crore (73%)

15

VISION

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

productivity through balanced use of energy efficient fertilisers; maintain the

environmental health; and to make co-operative societies economically and democratically

strong for professionalized services to the farming community to ensure an empowered

rural India.”

16

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”

1) To provide to farmers high quality fertilisers in right time and in adequate

quantities with an objective to increase crop productivity.

2) To make plants energy efficient and continually review various schemes to

conserve energy.

3) Commitment to health, safety, environment and forestry development to enrich the

quality of community life.

4) Commitment to social responsibilities for a strong social fabric.

5) 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.

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

stimulating and challenging experience for stakeholders.

7) Building a value driven organization with an improved and responsive customer

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

and practice.

8) To acquire, assimilate and adopt reliable, efficient and cost effective technologies.

17

9) Sourcing raw materials for production of phosphatic fertilisers at economical cost

by entering into joint ventures outside India.

10) To ensure growth in core and non-core sectors.

11)A true co-operative society commitment for fostering co-operative movement in

the country.

Emerging as dynamic organization, focusing on strategic strengths, seizing

opportunities for generating and building a past success, enhancing earning to

maximize the shareholder’s value.

VISION 2010

18

In order to maintain the sustained pace of remarkable growth being achieved under

mission-2005 the society is in the process of formulating another growth plan “VISION

2010” which aims at:

1. Attaining an annual turnover of Rs.15000 crore by 2010

2. Installation of Ammonia and Urea plants including acquisition of fertilisers units.

3. Backwards integn to meet feedstock requirements such Phosphoric acid.

4. Genen of Power.

5. Explon /Distribution of marketing of Hydrocarbons.

6. Value addition to agro-products and marketing.

7. Manufacturing of Petrochemicals, Banking and Financial services.

8. Information technology and IT enabled services.

9. Production and marketing of micronutrients seeds, biofertilisers, pesticides etc.

19

APPROACH

To achieve our mission, IFFCO as a Cooperative society, undertakes several activities

Covering a broad spectrum of areas to promote welfare of member cooperatives and

farmers. The activities envisaged to be covered are exhaustively defined in IFFCO’s Bye-

laws.

COMMITMENT

Our thirst for ever improving the services to farmers and member co-operatives is

insatiable, commitment to quality is insurmountable and harnessing of mother earth’s

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.

20

IFFCO ASSOCIATES

1. INDUSTRIES CHIMIQUES DU SENEGAL

2. OMAN INDIA FERTILISER COMPANY S.A.O.C.

3. INDIAN POTASH LTD.

4. NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD.

5. NATIONAL COLLATERAL MANAGEMENT SERVICES LTD.

6. COOPERATIVE RURAL DEVELOPMENT TRUST

7. KISAN SEWA TRUST

8. IFFCO FOUNDATION

9. LEGEND INTERNATIONAL HOLDINGS INC

21

AWARDS GALORE

KALOL UNIT

1) Seven awards received for overall performances from FAI.

2) Two awards for industrial safety from GOI.

3) Award for technical innovation from FAI.

4) Two Rajya Bhasha Shield for promoting Hindi.

5) Award for safety from National Safety Council, Chicago.

6) Indo German greentech environment excellence award.

PHULPUR UNIT

1) Four awards for productivity from NPC.

2) Six national safety’s award from GOI.

3) Two awards for overall performance from FAI.

4) Two awards for technical innovation from FAI.

5) FAI’s Award for Best Overall Performance of an operating fertiliser unit for Nitrogen

(Ammonia and Urea) Plant jointly with Zuari Industries Limited, Goa.

6) Three national energy conservation awards.

7) Three awards for best environmental protection from FAI.

8) Best environmental excellence awards from Indo German green tech foundation.

9) Best technical paper award by FAI.

22

KANDLA UNIT

1) Twelve safety awards from national safety council Bombay GOI.

2) Twenty-three safeties award from Gujarat.

3) Raj Bhasa award for promoting Hindi.

4) Six awards for overall performance from FAI.

AONLA UNIT

1) Award for best implemented project ( 2nd price) from GOI.

2) Award for conservation of energy from GOI.

GROWTH IN THE NUMBER OF MEMBER SOCIETIES

1967-68 : 57

1974-75 : 25528

1980-81 : 26960

23

1986-87 : 28134

1997-98 : 30200

2002-04 : 35072

2006-08 : 37381

2008-11 : 39564

24

ABOUT AONLA UNIT

LOCATION

State Uttar Pradesh

State Capital Lucknow

Distance from Lucknow 280 Km.

Distance from New Delhi 260 Km.

Nearest Airport New Delhi

Railway Station Aonla (10 Km. from the Plant)

Road Plant is In Bareilly–Aonla Bareilly highway.

Area under Plant 260 Hectares

Area under Township 220 Hectares

YEAR OF COMMISSIONING : Ammonia- Urea Complex commissioned in 1988

INVESTMENT : Rs. 651.6 Crore AONLA- I

YEAR OF EXPANSION : 1996

INVESTMENT : Rs. 954.7 Crore AONLA- II

YEAR OF DEBOTTLENECKING: 2008

INVESTMENT : Rs.149.2 Crore

25

PRODUCT CAPACITY TECHNOLOGY

TPD TPA

AMMONIA 3480 11,48,400 HALDOR TOPSOE

UREA 6060 19,99,800 SNAMPROGETTI

‘N’ 2788 9,19,908

The IFFCO AONLA Unit is located in the Gangetic Plains of Uttar Pradesh in Bareilly

district about 28 Km. Southwest on Bareilly-Aonla Road. It was set up on 08 January

1985 and started commercial urea production at 16 July 1988. The infrastructure of

AONLA unit is very big and constructed on 713 acres of land.

IFFCO Aonla unit is the most efficient and quality-wise as well as environmental

oriented unit so that M/s KPMG Peat Marwick, a quality registrar has certified it as ISO:

9002 unit and M/s BVQI London has accredited it as ISO:14001 unit. The Aonla unit, an

Ammonia- urea complex is comprised of the two phases:

o AONLA-1

o AOLLA-2

AONLA -1 was established in 1988 and it was digested to nation by honourable Prime

Minister of India late Shri Rajeev Gandhi on 17 May 1989.

AONLA-2 was established in1996 December. This unit was designed to nation by

honorable Prime Minister of India Shri I.K. Gujral on 28 Jan 1997.

26

SALIANT FEATURES OF AONLA UNIT

Particular Aonla-1 Aonla-2

Capacity (P.A.)

Ammonia 4,45,500MT 4,45,500MT

Urea 7,26,000MT 7,26,000MT

Project zero date 08.01.1985 30.09.1993

Mechanical completion 08.01.1988 30.11.1996

Ammonia production

started

15.05.1988 15.12.1996

Urea production started 18.05.1988 26.11.1996

Feedstock Natural gas Natural gas with Naphtha

Capacity Enhancement of Aonla and Phulpur Units

IFFCO has submitted the Techno-Economic Feasibility Report (TEFR) for Capacity

Enhancement of Aonla and Phulpur Unit to the Department of Fertilisers (DOF).

Following enhancement in capacity has been envisaged with a total annual increase in

Urea Capacity by 5.115 lakh MT:

Name of Unit Present Capacity

( MTPD)

Proposed

Capacity (MTPD)

Increase in

Capacity (MTPD)

Phulpur-1 1670 2080 410

27

Phulpur-2 2620 3000 380

Aonla-1 2620 3000 380

Aonla-2 2620 3000 380

Total 9530 11080 1550

The installed cost for the Enhanced Capacity is estimated at about Rs. 19 lakh per MTPD

of Urea as against the Rs. 65-70 lakh per MTPD Urea in case of a Grassroots Plant.

Therefore De-bottlenecking of existing Urea Units is the best route to create additional

capacity.

IFFCO has initiated action for De-bottlenecking of its plant at Aonla and Phulpur Units for

Capacity Enhancement. We are awaiting final clearance from DOF. Incidentally this will

also reduce the subsidy to Government vis a vis imported Urea.

PLANTS OF AONLA UNIT

There are mainly four plants in the unit namely:

1. Ammonia Plant

2. Urea plant

3. Product Handling Plant

4. Steam and Power Genen Plant

28

LINE CHART AT AONLA UNIT

29

Sr. General Manager

General Manager General Manager

JGM/CM

Technical

JGM/CM

Maint.

JGM/CM

Production

JGM/CM

Utility

JGM/CM

Comm.

JGM/CM

F & A

Ammonia

Plant

Mechanical Process Power Plant Purchase F& A

Urea Plant Electrical Design &

Drawing

Offsite Store

JGM/CM

Traffic

Product

Handling

Instrumental

Library &

Document

General

Engg.JGM/CM

Fire & Safety

& Env.

Civil

Laboratory

Training &

Development

Finance & Accounts Department At A Glance

The Finance & Accounts Department of IFFCO, Aonla is divided into 5 sections, to

facilitate smooth and easy functioning and control.

Organisation Structure

31

Supply Section

Note Sheet Payment

Work Order

FINANCE & ACCOUNT

DEPARTMENT

BOOKS/FICC CELL

FINANCIAL CONCURRENCE

BILL SECTION

PAYROLL SECTION

PSL SECTION

Work contract

Imported supply

Indigenous supply

Service contract

Line of Control in Finance & Account Department

Account Officers

Junior Account officers

Senior Accountant

Junior Accountant

32

HOD/ C.M. (F & A)

Senior Manager (F& A)

Manager (Account)

Deputy Account Manager

Senior Account Officers

Senior Manager (F& A)

Manager (Account)

Manager (Account)

Manager (Account)




FINANCE AND Y

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 cr[`ucial 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

1. BOOKS SECTION

This section basically deals with accounting function, maintenance and keeping of records.

The various functions include:

a. Books: Preparing and maintaining balance sheets.

b. IFCC (Fertiliser Industries Coordination committee)

33

c. Costing & Pricing Cells

d. Reporting

2. PAY ROLL SECTION

This section deals with the payments of salary and wages to the employees and

extending various other benefits are covering under to preview are –

a. Salary

b. Leave Travel Concession (LTC)

c. Medical Allowance

d. Conveyance

e. Advances

f. Loans to employees

3. Taxation Section

As per the status and opens of the society, It deals with the following Taxes:-

a. Central Excise Duty

b. Income Tax

c. Service Tax

d. Sales Tax

34

NEED OF THE STUDY

In every organization INVENTORY CONTROL is a big problem and for IFFCO it is

too much typical to handle the inventory in a better and efficient way. Because there

will be lack of inventory then the production will be interrupted and it is not good for

any organization.

1) The management tries to make its inventory system more efficient and effective to

continue the smooth production of fertilizers.

2) An organization is always interested in minimizing the cost that is invested in the

inventory and how to regulate the whole inventory system in a better way.

3) Management of any organization tries to 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?

5) This report is prepared to analyze the working of various departments that work in

coordination with Finance department as payroll section, bill section, taxation

section etc.

35

OBJECTIVE OF STUDY

“The main aim of study is to check the efficiency and effectiveness of INVENTORY

CONTROL 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 investment in inventory by IFFCO.

2) To analyze the financial position of the company.

3) To give suggestion if any, regarding effective INVENTORY CONTROL.

Or

To give suggestions to ensures smooth and uninterrupted supply without making

unnecessary investment of funds in inventory.

36

METHODOLOGY

The data has been collected from the primary resources as questionnaire. Then it was

distributed to all the employees of the finance department and purchase department. The

questionnaire is built considering the availability of data and convenience. Data were

collected through the inventory software, databases, net and by asking questions. The

collected data is captured into the questionnaire for the analysis. There is no manual

coding. I have also included some financial data with the help of annual report.

The data is collected with the help of questionnaire and observation. In the

questionnaire all the relevant questions regarding the INVENTORY CONTROL are

included. Here we have used convenience sampling that is we have selected the data

according to our convenience. I have followed that results which are quite similar in

responses.

37

TOOLS OF THE STUDY

For preparing the report the data has collected through the literature survey. The graphs

and tables are used to complete this study. There is the use of Histogram in Graphical

presentation.

SOURCES OF DATA

There were various sources for collecting the data. But I have collected data from some of

the resources that are as following-

1) Questionnaire

2) Internet

3) Annual report of IFFCO

4) From the stores

5) By the inventory software (PSL) that is used in IFFCO

38

CONCEPT OF INVENTORY CONTROL

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 CONTROL involves the control of assets being produced for the purpose

of sale in the normal course of the company's opens. The goal of effective INVENTORY

CONTROL is to minimize the total costs - direct and indirect - that are associated with

holding inventories. However, the importance of INVENTORY CONTROL to the

company depends upon the extent of investment in inventory.

The term ‘inventory’ includes:

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

39

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 CONTROL. Managerial

functions are performed with respect to inventory; it may be called INVENTORY

CONTROL.

The objective of INVENTORY CONTROL 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

CONTROL comprises the functions of planning, controlling and organizing the types of

all goods, quantity, status, flow and time- sequence etc.

40

Need for INVENTORY CONTROL

INVENTORY CONTROL is an integral part of general management. Three important

functional aspects of a business are closely related to INVENTORY CONTROL. These

are:

1) Production management

2) Marketing management

3) Financial management

Here the production management and marketing management are related to the physical

aspect of INVENTORY CONTROL and; financial management is concerned with the

financial aspect of the INVENTORY CONTROL.

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 opens.

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.

41

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:

Purchasing

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

2) Average monthly consumption since last purchase for stock items

3) Maximum /minimum level

4) Last purchase order reference

5) Reorder level

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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) Single stage

2) 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

Indentor is that person which raises the indent.

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PURCHASE PROCESS

The purchase process can be expressed as following:

INDENTOR

Material Purchase Requirement (MPR)

Single stage

Enquiry Two stage

E- Procurement Manual

(15 days) (21 days)

Opening

Quotation Comparative Statement (QCS)

Technically Acceptable L-1 Bidder

Order

(With approval of competent authority)

It can also be summarized as follows:

44

1) RAISING OF INDENT: First of all the indentor raises the indent. This indentor

may belong to any department. Now the indentor informs to the store. If that

particular material is not available at the particular point of time then store informs

to the purchase department. After it the working of purchase department starts.

2) RECOGNITION OF NEED: The purchase department recognizes the need of

indentor and checks whether that material is available in the store or not. The

availability of input material at all points of time is the responsibility of purchase

department.

3) REQUISITION TO PURCHASE: This is an intimation to purchase department

by the indentor that he has need of certain materials. He raises indent by filling a

form ‘Material Purchase Requisition’ (MPR). In this he gives several information

like:-

a. Material description/ Proposed Reason

b. Item code/ proposed code

c. Unit

d. Quantity required

e. Value

f. Budget code

g. MPR No.

h. Indentor

4) MRP SCRUTINY: Next step involves scrutinizing of the MRP to certified the

genuinely of the need, for this, first approval to given by immediate higher authority

45

of the indentor. Next, the MRP is send to the stores, to check whether the material is

available or not. If it is not available the MRP goes to the purchase department. For

further action. Here it is scrutinize in three ways :-

Approval scrutiny

Budget scrutiny

Technical scrutiny

5) SENDING or ENQUIRY/INVITATION TO BID: Enquiry can be done by

two types:

I. Single stage

II. Two stage

SINGLE STAGE: Single stage is followed when there is no or very few

chance of technical deviation. Here there is no restriction on supplier or

vendor. This enquiry is done in case of nonproprietary items.

TWO STAGE: Two stage enquiry is followed when there is more chances of

technical deviation. This enquiry is done in case of proprietary items.

Items can be classified in to two categories keeping in view the purchasing function –

Proprietary items: These are those items e.g. spares which have to be

bought from particular supplier or vendor.

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Nonproprietary items: These are those for which there is no restriction on

vendor.

Enquiry is sent in order to know the prices and other terms and conditions of vendors.

Bidding can be done in three ways-

I. Proprietary bidding: This is for the proprietary items and is sent to only

one vendor. Here the proprietor is invited to set a competitive price.

II. Limited tender enquiry: This is done for non proprietary items and bids

are invited from a limited no. of vendors selected from the registered

vendors with the company.

III. Press tender/Open bidding: If the amount involved in purchase is more

than three lakhs and the item is non proprietary then press tenders are

issued in various news papers. There may be global tenders also.

6) Receiving of offers: After all the bids have been submitted the tenders are opened

before tender committee to compare the quotations-

Quotations comparison statement (QCS) is made and bid with lowest quotation is

generally chosen. QCS is also sent to the technical department and in consultation with it

one more than one offer are chosen, giving quality and price the top priority. Quotation

must be technically acceptable. Generally technically acceptable L-1 bidder is chosen.

7) Purchase order: After selecting the best offer, purchase order is sent to that

vendor with all the terms and conditions specified and details of the material to be

purchased are also given. A bank guarantee of performance is taken from the vendor

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in advance which is usually 5% of the P.O.A. time limit is set for delivery of

consignment and in case of delay a penalty is imposed @ 5% of P.O. per week.

8) Receipt of materials: After the consignment reaches the stipulated place, the

payment is done by the organization according to the purchase terms agreed upon by

the two parties. The material is checked for quality conditions, quantity and then sent

to the store where the store releases the “Stores Receipt Voucher” (SRV). From here it

is delivered to the indentor. Normal payment is done after 30 days from the receipt or

acceptance of material.

9) Follow up done for every order: It may be regarding delay in supply, changes

in price, defective or damaged items supplied etc. For every indent, a separate file is

opened and correspondence goes on. For every step, recommendations of indentor,

manager (F& A), materials manager & general manager are sought. In case of

damaged input materials the store does not accept the materials. A rejection report is

prepared in case of damaged items.

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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.

DOCUMENT REQUIRED FOR THE DISPATCH OF GOODS

Following documents are required for the dispatching of materials:

Challan 3 copies

Packing list 3 copies

Test certificate 3 copies

Railway/ Lorry/ Air 4 copies

Consignment note

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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 indentor 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

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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.

In respect of transit insurance claims bill section will pass an adjustment

Entry debiting “claim recoverable account” and credit the “Advance to

Vendors account”. After the adjustments the bill section sent the copy of journal

voucher along with all necessary details such as P.O. No. , MRR No. quantity and

value, name of the supplier to the insurance section for following up the claim with

the insurance company.

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Accounting of Raw Materials

Based on the projected consumption requirement of raw materials, the procurement action

is taken by the commercial department at the head office which is in Delhi.

Described below is the accounting requirement of major raw material.

Imported Phosphoric acid and Ammonia

The consignment of phosphoric acid and Ammonia are received at Kandla and the

material actually received is valued at the contracted cost & freight price.

Where free on board (FOB) price is agreed, the ocean freight element is loaded separately.

All connected expenditure like customs duty; handling charges etc. are also included in

inventory valuation.

The valuation of inventory at the month end is to be made on the basis of exchange rates

prevailing on the last day of the month. The difference if any between the provisional rate

and the actual payment rate shall be charged off to the consumption account, if the

material is already consumed.

The account department also ensures that all claim suppliers for shortage are booked on

monthly basis and necessary on quarterly basis for the pending claims.

Indigenous Ammonia

The indigenous ammonia is supplied by KRIBHCO / GNFC to Kandla unit. The quantity

received is accounted at the price payable to the party which is fixed by the Govt. of India.

This price is fixed at par with the landed cost of imported ammonia.

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Potash

Potash purchase orders are placed by the commercial department time to time depending

on the material requirement. The material received valued at agreed price plus local sales

tax and freight for transportation of material up to plant site.

The finance department at head office ensure that payment

for these raw materials are released on due dates to avoid interest liability. After releasing

the payments the inter unit debit advice is sent to plant. On receipt of the payment advices

the supplier’s account is adjusted in the plant.

Natural Gas

Kalol and Aonla plant consume as feed stock and fuel. As per the contract with ONGC,

gas is supplied to IFFCO at the price fixed by Govt. of India from time to time.

The meters provided at the inlet point in the plants are the basis for monthly

billing. Meter reading is carried out jointly by ONGC / GAIL and IFFCO representatives.

The unit sends the telex to head office for making payment to ONGC / GAIL after due

certification of bill by the head of technical department about quantity of gas received.

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Naphtha

Naphtha is supplied by IOC against advance payment terms. There are excise duty

concessions available for these items provided they are consumed for manufacture of

fertilisers. Accounts department in coordination with production department shall ensure

that all the excise duty requirements are fulfilled that the duty concessions are fully

availed. The inventory is valued based on the quantity received as per MRR received from

production department on monthly basis. The price payable to IOC for naphtha is fixed by

the Govt. by time to time the naphtha is supplied to Kalol unit from Mathura refinery.

Catalysts & Resins

The Catalysts & Resins are produced by the material department at the plant; on the

receipt of the material the inventory is valued at the agreed price. For Catalysts & Resins

where IFFCO has pooling arrangement with other companies, the material received is

taken to inventory at the actual price paid and equivalent amount is credited to “material

received on loan account”.

This entry will be reverse when the material is procured by IFFCO and replenished for

return of loan. The inventory and consumption account then shall be accounted at the

actual procurement price.

54

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 opens 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.

a. Store A for Aonla-1( this store contains that spares which are used by Aonla-1)

b. 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

PDIL store

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:

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Goods receipt / railway receipt / challan

Form

Excise duty

2) The particulars of the document are noted in the carrier receipt register (CRR).

3) After the entry in the register, the document is given to an agent termed as

handling contractor. He will collect the material.

4) 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.

5) The next open 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, indentor, 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 received in stores, by internal stores return voucher (ISRV). After

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issuing the material the number of issue and the quantity issued is noted in SIV control

registers.

Custody section takes care of spares.

SPARES –

About 36848 spares of Aonla Unit-1 are housed in store and 17799 spares of Aonla Unit-2

are housed in store. Spares have been classified plant wise. The first digit of the code of

item is numbered according to given criterion-

Ammonia

Urea

Product handling

Power

Sp. Equipments

General items

In IFFCO inventory is divided into two types:

i. General and

ii. Spares

General are those inputs which can be used at various sites as wire, pipe etc.

Spare are those inputs which are specific to a particular plant and are of particular size.

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ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEM

AONLA UNIT -1

Verified in the year

A Class B Class C Class Unclassified Total

General Spare General Spare General Spare General Spare General Spare

2004-05 0 0 0 0 0 1 0 0 0 1

2005-06 0 0 0 0 7 1 0 0 7 1

2006-07 0 0 0 0 3 6 0 0 3 6

2007-08 0 0 22 20 8323 10381 0 0 8345 10401

2008-09 0 1 72 122 3512 1277 0 0 3584 1400

2009-10 0 0 49 0 41 0 0 0 90 0

2010-11 134 402 384 630 3982 4072 0 0 4500 5104

0 0 23 112 229 613 523 1876 775 2631

Total 134 403 550 884 16097 16381 523 1876 17304 19544

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ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEMS

AONLA UNIT-2

Verified

in the

year

A Class B Class C Class Unclassified Total

General Spare General Spare General Spare General Spare General Spare

2005-06 0 0 110 271 203 393 0 0 313 664

2006-07 0 0 0 0 2 11 0 0 2 11

2007-08 0 0 0 0 2713 5353 0 0 2713 5353

2008-09 0 1 0 0 1185 311 0 0 1185 811

2009-10 0 0 0 0 13 4 0 0 13 4

2010-11 134 389 257 626 1428 2204 0 0 1819 3279

0 0 0 0 159 219 139 1115 298 1334

Total 134 389 367 897 5703 9055 139 1115 6343 11456

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ACCOUNTING FOR STORES

General Outline of stores Function:

a. 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.

b. 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.

2. Accounting of imported materials for capital works and opens.

3. Associating with stores section for stock verification.

4. Valuation of stores items should do on weighted average basis.

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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

d) 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.

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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.

f) 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

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Cleared by the accounts section dealing with the works. Recovery should be

predefined basis and must be uniform.

j) For material returned to stores, return note shall be priced by the stores accounting

section at the same rate which it was issued and the Value shall be debited to the

relevant code of stores and spares parts inventory accounts by credit to the cost

center / job number where the material is received back. The return note shall be

priced on the basis of the original issue requisition against which the material was

drawn if such reference is available, otherwise the same should valued at the

prevailing average monthly rate applicable to that material.

k) No material shall be transferred to one card to another card without giving proper

information to the stores account section. Such transfers shall be made by means of

a transfer voucher on receipt of such transfer voucher and pass adjustment entries

by debiting and crediting respective accounts.

l) Under the mechanized system of store accounting, all documents, such as MRR’s

issue notes return notes and transfer vouchers shall be sent to the EDP section after

exercising the prescribed checks. The EDP section shall prepare the all accounting

abstracts with the summary figures with monthly journal entry. In addition, it shall

prepare the priced store ledger. Ledger abstract for all items transacted during the

month giving the opening stock, receipts, issues and past closing balance shall also

be prepared. A copy of this statement shall be forwarded to store section for

verification of the bin card balances. Discrepancy if any shall be reconciled by the

store section with the stores accounts section.

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m) The price store ledger balance for each category store shall reconciled value wise

with the control account balance in the ledger wherever possible. The accounts

section shall draw out reconciliation on monthly basis. After reconciliation a

monthly material consumption statement, cost center wise, is prepared and

circulated to concerned department by the 10th of following month for verification

of its correctness and for monitoring the budgeted expenditure, if any discrepancy

is reported, the same is adjusted in the ensuring month.

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 declan 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 declan 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

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insurance. In case of a declan 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

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

Finished products

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.

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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.

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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

A Above Rs. 50,000/- 100%

B 10,001 to 50,000/- 70%

C Below Rs. 10,000/- 25%

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.

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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:

a. The cost of holding the stock (e.g., based on the interest rate).

b. The cost of placing an order (e.g., for row material stocks) or the set-up cost of

production.

c. 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 CONTROL 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 CONTROL and the activities of Inventory Control do not make decisions

or manage opens; they provide the information to Managers who make more accurate

and timely decisions to manage their opens.

Inventory control is a systematic control and regulation of purchase and usage of materials

in such a way so as to maintain an even flow of production at the same time avoiding

excessive investment in inventories. Efficient material control reduces losses and wastage

of materials that otherwise pass unnoticed.

Inventory control is the core of material management. The need and importance of

inventories varies in direct proportion to the idle time cost of men and machinery, and

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urgency of requirements. If men and machinery in the factory could wait and so could the

customers, materials good not lie in want for them and no inventory need to be carried.

But it is highly uneconomical to keep the men and machine waiting and the requirements

for modern life are so urgent that they can not wait for materials to arrive after the need for

them has arisen.

Because materials constitute a significant part of the total production cost of

the product. Thus, cost is controllable to some extent; proper planning and controlling of

inventories are of great importance. If investment in inventory will be more then the

company has to bear carrying cost and that finance can not be utilized.

A good INVENTORY CONTROL policy should ensure smooth and uninterrupted supply

without making unnecessary investment of funds in inventory. This requires that

INVENTORY CONTROL policy must balance the requirements of the following two

opposing and conflicting ends:

i) To maintain a large quantity for smooth open and efficient customers’ services.

ii) To maintain only a minimum possible inventory because holding costs and

opportunity cost of funds invested in inventory.

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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 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 deterion, obsolescence and unauthorized use.

6) To ensure that finished goods are available for delivery to customers just to fulfill the

orders.

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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 s

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.

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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.

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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 Controls:

Inventory turnover helps management to avoid capital being locked up unnecessarily.

This reveals the efficiency of stock keeping .

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

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

Stock turnover 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

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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.

76

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 properly

explained to all concerned people so that its purpose, logic and nale 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.

77

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 deterion 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.

Apart 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:

78

i. Data entry

ii. Queries

iii. Reports

iv. Processing

v. Calculator

vi. Exit

79

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:

80

Data Entry

Document entry

Adjustment SIV

Adjustment ISRV

Physical Verification Entry

Entry of Surplus/ obsolete/ Insur.

SRV SIV ISRV SAV STV (IN)

STV (Out)

This option is used to enter the data in various types 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. If the value of material has

wrongly feed in the documents or the valuation is high then it is used to decreases the

value of that material.

Adjustment ISRV:

This option of data entry menu has the same working in issue stock

return voucher (ISRV). This is used whenever the valuation of any material has to

increase. Thus easily adjustments are made.

Physical Verification:

In case of verification of stock the person responsible for stock

verification estimates a range of items for verification and after verifies the selected range

of items, they punched the quantity verified or lock the verified quantity till the next

verification.

Entry of Surplus/ Obsolete:

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 make entry @ of 1 Rupee per unit of items. There are

81

some spares which are not in used. We give entry them in surplus. While the spares which

are not in working condition or they are outdated, comes under obsolete items.

REPORTS MENU

82

Reports

Summary account head wise

Month Report before PSL runs

Month Report after PSL runs

PSL JV

Inventory Consumption

Kardex

Code wise inventory status

Yearly summary for HO

Issue above

Issue more than

Other reports

Summary A/C head wise:

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

respect of accounts heads like

Inventory spares (Ammonia, Urea etc.)

Loose Tools

Chemicals

General Stores

Construction Materials etc.

Monthly report before PSL runs:

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 runs:

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.

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.

.

84

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. It helps in deciding the re-order level of inventory.

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.

As the name of this menu, we can perform the query task, on the basis of material codes,

that are of twelve 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.

85

Queries

Brows Inventory Master

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.

86

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.

87

Processing

Put account group in INVMAST

PSL Process 1

Reverse stock for Physical Kardex mismatch

Reverse stock for PSL Kardex mismatch

Weekly PSL proc.1

Cumulative process

PSL Process I:

The option process I update and calculate 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. PSL Process is done for tallying

codes and value of the material.

Put A/C group in inventory Master:

This option also a processing task when we executes this option it assigns the account

group to all the inventory / item codes so that these codes may link to a particular account

group. In this inventory are grouped.

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.

88

Calculator & Exit Menus

The calculator menu has no sub option we can use the calculator only by clicking on the

calculator menu. It helps much in manual calculations make the surety of correctness.

Apart from this the exit menu is simply for quitting the software, whenever we click over

the exit menu it exits from the software.

89

DIFFERENT VOUCHERS

In IFFCO there are 3 types of receipt and 1 issue voucher are generally used for the particular

receipt and issue material. These are listed as below:

1. RECEIPT VOUCHER

SRV (Store receipt voucher)

ISRV (Internal store receipt voucher)

DCSRV (Direct consumption store receipt voucher)

2. ISSUE VOUCHER

SIV (Store issue voucher)

3. ADJUSTMENT VOUCHER

SAV (Stock adjustment voucher)

STV (Stock transfer voucher)

90

SRV (STORE ISSUE VOUCHER)

When material is checked with challan / invoice and the purchase order for quantity SRV (store receipt

voucher) is prepared and the material kept in section.

SRV can be of two types:

(a) FIS ( Receipt from supplier voucher)

These vouchers are generally generated by the store whenever the material is received from the

supplier/ vendor in stores.

(b) H.P ( Receipt voucher for direct consumption)

These vouchers are generally generated when material is directly received by the indentor for direct

consumption of raw material.

The copy of these SRV will be dispatched departments such as:

(a) 1 copy to purchase department.

(b) 1 copy to indent department.

(c) 2 copy account department.

(d) 1 copy lies with stores itself.

91

ISRV (INTERNAL STORE RECEIPT VOUCHER)

If the hundred percent of the issued material have not been utilized by the particular department or

parties, in this stage the concerned party or department will revert back the remaining raw material to

store by using such type of issue voucher.

These ISRV can be of 5 types which are as follows:

BD: Such types of ISRV are generally used by the particular department for the general item.

BB: Such types of ISRV are used for the spare return by the particular department.

BC: Such types of ISRV are generally used by the contractor for return of remaining raw material.

BE: These vouchers are used for stationary items.

BA: these are also used by controller for spares.

Note: The copy of these ISRV will be send to the following departments mentioned as:

(a) One copy to store.

(b) Two copy to account department.

(c) One copy lies with the indentor itself.

92

SIV (STORE ISSUE VOUCHER)

The accepted & stock charged material is to user department against Store Issue Voucher issue to

contractor through SIV. The authority of the SIV is given to competent person of Indentor department

and this sign checked by the store section before issue and any permanent employee of IFFCO AONLA

shall sign it at the time of receipt of material by the indentor department.

These SIV can be of 5 types such as:

ID: Such types of SIV are generally used by the particular department for the general item.

IB: These vouchers are issued by the department for spares.

IC: Such types of vouchers are generally issued to the contractor in case of general items.

IE: Such vouchers are generally issued by the particular department for the stationary items.

IA: These vouchers are generally used when the spares are issued to contractor.

NOTE: The copy of these SIV will be dispatched to following department such as:

(a) One copy to purchase department.

(b) One copy to indentor.

(c) Two copy to account department.

(d) One copy lie with the store itself.

(e) One additional copy to security.

93

SAV (Store Adjustment Voucher)

These vouchers are used when there is some fault in the code of the material. In this case

SAV is prepared. But in SAV the value of the material should be same that is equal to the

previous material which was entered in the voucher by mistake.

STV ( Store Transfer Voucher)

Store Transfer Voucher is used in case of transferring the material from one store to

another. As we know that there are two stores in IFFCO. One is for Aonla-1 Unit and

second for Aonla-2 Unit. In Aonla-2 store generally catalyst are stored. Thus STV is used

when we transfer the input material from one store to another.

STV are of two types:

1) STV(in)

2) STV(out)

INDIAN FARMERS FERTILISER COOPERATIVE LTD.

AONLA UNIT

STORES RECEIPT VOUCHER

SRV NUMBER

DATE

CRR NUMBER

SRV PREPARED:

PO No.& Date ABNL ABB Ltd. CRR Date

RECD Date

CHALLAN/BILL No.

GR/RR No. Freight From: DEPT CODE: FORM 31 No.

94

Date:, Transporter

Paid

Truck/Trailer/Wagon

FARIDABAD

DEPT Name

RR

S.No. ITEM CODE DESCRIPTION Unit Qty. Value Inspection remarks

PO

SNo

Card balance No Po:

Challan:

Received:

Accepted:

Rejected:

DIS/REJ No.

PO

SNo

Card balance No Po:

Challan:

Received:

Accepted:

Rejected:

DIS/REJ No.

95

INDIAN FARMERS FERTILISER COOPERATIVE LTD.

AONLA UNIT

DIRECT CONSUMPTION STORE RECEIPT VOUCHER

DCSRV

SRV NUMBER

DATE

CRR NUMBER

SRV REF:

PO No.& Date

Inter unit trans.

IFPH

IFFCO PHULPUR UNIT

CRR Date

RECD Date

CHALLAN/BILL No.

GR/RR No.

Date:, Transporter

Freight

Paid

From: TRK/WGN

PHULPUR

DEPT CODE:

DEPT Name

FORM 31 No.

S.No.

DESCRIPTION

Unit Qty. Value Inspection remarks

PO

SNo

BOLT WITH NUT SIZE M12*165MM LONG PT.NO.BN 12*165(SS304)

No Po:

Challan:

Received:

Accepted:

Rejected:

Exp. Code

DIS/REJ No.

PO

SNo

No Po:

Challan:

Received:

Accepted:

Rejected:

Exp. code

DIS/REJ No.

96

DESPATCH ADVICE

NO:

TIN NO:

KER ENGG. WORKS

RAMPUR ROAD, BAREILLY

C.B.GUNJ.BAREILLY

P.O/W.O.NO:

AUTHORITY FOR DISPATCH:GM

S.NO DESCRIPTION QUANTITY UNIT REMARKS

1 2RE-69 ROUND RAR(5 NO)

MR FOR MACHINING

2 MR -DO-

3 MR -DO-

4 MR -DO-

CASE MARK

DIMENSIONS& TOTAL NO PKG

NET WT.

PKD.BY PREP. BY DESPATCH THROUGH: DOOR DELIVERY RR/GR NO: GATE PASS:

PKGS FREIGHT

COST: RS.

SIV NO: SR. MANAGER STORES

THE AFORESAID ITEMS HAVE BEEN RECEIVED IN GOOD ORDER &

CONDITION

COPY TO: 1) CONSIGNEE

2) TRANSPORTER

97

3) CM (F &A)/ INSURANCE

4) INDENTOR

5) G.M.APP./W.O.FILE. RECEIVER’S SIGNATURE& STAMP

98

REJECTION/DISCREPENCY REPORT

REF: DATED:

M/S AB SALES & SERVICES

365, HARRIS GANJ

KANPUR FAX:

CRR NUMBER:

SUB: OUR P.O. NO:4410/1294/WS0137//071125

YOUR REF/INVOICE/BILL.CHALLAN NO. 10/SP/TAX/08

RR/LR NUMBER: GR 8319469 DATE:

Transpoter: SOUTH EASTERN ROADWAYS DATE:

BOMBAY

Dear Sir,

Please refer to the supply of materials against your invoice/Challan No. as mentioned

above. On opening the case/s and checking the contents the following discrepencies have

been observed.

S.No Material

Description

Unit QUANTITY Remarks

Desp. Received Excess Short Rejected

1.

2.

The packing case/s was/were received in sound/broken condition.

99

ACTION REQUIRED BY YOU

YOU ARE REQUESTED TO:-

1. Make good of shortages.

2. Dispatch replacement against breakages/unacceptable material.

3. Inform disposal action for breakages/unacceptable material.

4. Being excess supply than our order quantity, material has not been accepted.

Cost of damage if any_____________________________________________

Payment Terms: yours faithfully,

For INDIAN FARMERS FERTILISER COOP.LTD.

Location CH. MANAGER (STORES)e-

Mail:

Fax: Through E-proc Phone

100

INDIAN FARMERS FERTILISER COOPERATIVE LIMITED

Aonla Unit, P.O. IFFCO Township, Bareilly

TENDER ENQUIRY

MPR No 080380

INDENTOR’S COPY

UTILITIES DEPT

Enquiry No: 6000/672/UT0044/IE/080308(*)

This Enquiry is due on 14/07/2008

Desired Delivery: 4 Weeks

Enquiry Type Single Stage

Dear Sir,

Please submit your Sealed Quotation, with earliest delivery, as per terms and

conditions and specification given below and enclosed herewith.

S.No. Item Code Description Quantity Unit

1 DC Liquid Chlorine 99% pure as per IS code

646/1988(latest version) in IFFCO.

220 MT

PERFORMANCE BANK GUARANTEE:

The seller on award of P.O./W.O., shall furnish a Performance Bank Guarantee equivalent

to 5% of the P.O. value in our Performa enclosed. This bank guarantee shall be issued by

any State Bank of India and its associates. Nationalised/ Scheduled Commercial Bank/

Cooperative Bank who are members of IFFCO’s consortium of Banks (Except other

cooperative and Gramin Banks) having branch in India and be valid to cover the guarantee

period with a claim period of further six months.

101

INDIAN FARMERS FERTILISER COOPERATIVE LIMITED

PURCHASE ORDER

Thru Courier

M/s : JASUBHAI ENGINEERING PVT.

Add: 803-4, Chiranjiv Towers, Nehru place

City: New Delhi Pin: 110019

E-mail:

Code: JASU

Test Copy

Order No.

Your Quot:

Our Enq No:

Delivery

Dely Pd.

Consignee:

Destination:

Dear Sir,

Please arrange to supply the following as per your quotation referred above subject to conditions mentioned herein and enclosed herewith.

S.No Description Quantity Unit Rate Amount

1

2

Total Value …………………

Price Basis : Ex-Works Ahmadabad

P& F Charges : P&F Charges @ 2.00% extra

Excise Duty : Extra as applicable against documentary evidence present rate is @

14.42%

Sales Tax : Extra as applicable against form ‘C’

102

IFFCO-AONLA

MATERIAL PURCHASE REQUITION: MPR-NO.: 080472

Dept-Ref-No.: 2200/2171

Budget Code

Sanctioned-Amt

Utilised- Amt

This MPR(Rs.)

Balance Issue-Date:

Expected:

Dly Date:

N*.05 ……….. ………… ……….. ………..

Class: Stock, capital, D.C., Supply, Ordinary, Proprietory, Domestic, Single stage

Indentor: ADMN SECTION

Suggested Vendor Ctegory: Godrej & Boyce Mfg. Co. Lucknow.

MPR Description: Procurement of official furniture for the year-2008

Brief Justification: Office furniture are required for different section/deptt.

Last Pos/WOs Ref Nos:

Last Pos/WOs total value:

S.No Item code Material decription

Unit Quantity required

Inventory levels

Value Stk-oth.unit/ last 3yr consumption

1 DC

2 DC

3 DC

INDIAN FARMER FERTILISER COOPERATIVE LTD.

AONLA UNIT SAV NUMBER: 089UYW008

DATE : 8/6/2005

103

STORES ADJUSTMENT VOUCHER

------------------------------------------------------------------------------------------------------------------------------------------------------------

FROM TO

------------------------------------------------------------------------------------------------------------------------------------------------------------

Sno Code No. E Stock

---------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------------------

SIGN

INDENTOR STORE KEEPER STORE STORE OFFICER MANAGER STORE

104

ANALYSIS OF IFFCO

A is a simple arithmetical expression of the relationship of one number to another. It may

be defined as the indicated quotient of two mathematical expressions. One of the most

important financial tools which have come to be used very frequently for analyzing the

financial strengths and weaknesses of the enterprise is analysis. analysis as a technique of

analysis and interpretation of financial statements. It is the process of establishing and

interpreting various s for helping in making certain decisions.

“Financial analysis is the calculation and comparison of s which are derived

from the information in a company's financial statements. The level and historical trends

of these s can be used to make inferences about a company's financial condition, its opens

and attractiveness as an investment.”

Financial s are calculated from one or more pieces of information from a company's

financial statements. A financial can give a financial analyst an excellent picture of a

company's situation and the trends that are developing. A gains utility by comparison to

other data and standards. analysis can also help us to check whether a business is doing

better this year than it was last year; and it can tell us if our business is doing better or

worse than other businesses doing and selling the same things.

Financial analysis groups the s into categories which tell us about different facets of a

company's finances and opens. An overview of some of the categories of s is given below.

105

1. Leverage s which show the extent that debt is used in a company's capital

structure.

2. Liquidity s which give a picture of a company's short term financial situation or

solvency.

3. Openal s which use turnover measures to show how efficient a company is in its

opens and use of assets.

4. Profitability s which use margin analysis and show the return on sales and capital

employed.

5. Solvency s which give a picture of a company's ability to generate cashflow and

pay it financial obligations.

s are always expressed as a decimal value, such as 0.10, or the equivalent percent

value, such as 10%. Financial s allow for comparisons

between companies

between industries

between different time periods for one company

between a single company and its industry average

106

HOW A IS EXPRESSED?

As Percentage - Such as 25% or 50%. For example if net profit is Rs.25, 000/-

and the sales is Rs.1, 00,000/- then the net profit can be said to be 25% of the sales.

As Proportion - The above figures may be expressed in terms of the

relationship between net profits to sales as 1: 4.

As Pure Number /Times - The same can also be expressed in an alternatively

way such as the sale is 4 times of the net profit or profit is 1/4th of the sales

107

FINDINGS OF THE STUDY

Some organizations invest 60 to 70 % of its capital in inventories. Thus it is very

important for the organization to manage its inventory through effective inventory

control systems. The findings of studying INVENTORY CONTROL of IFFCO are as

follows:

1) There is used one inventory software (PSL) by the employees for efficient

INVENTORY CONTROL and to remove the paper work. But there are some

employees including managers who do not know how to operate that inventory

software while it should be known by all the employees that are related to

INVENTORY CONTROL segment.

2) It was observed one thing that there was not coordination among the employees

even between those who lies in the same level. This feeling of human

characteristics is normally seen but it is not good for the organization. For the

better productivity there should be proper coordination. And through the

coordination an organization can manage its all functioning including

INVENTORY CONTROL.

3) IFFCO is a semi-government organization. So there were some employees who

have got the senior position because of experience. Even after having experience

those people were not able to operate all the functions and work related to

inventory. It was due to change in the technology.

4) Firstly in IFFCO paper work pattern was followed but now it has converted in

soft form that is computers are provided to the employees. Now the kardex and

108

other documents and details are entered in the computer as well as in the files.

But due to lack of knowledge about new software, the working is not proper.

5) The inventories of IFFCO are divided into three parts that are-

I. Inventory of raw materials

II. Inventory of finished goods

III. Inventory of spares

Here I have studied the inventory of spares. Because the raw material that is used

in IFFCO are gases and the measurement of its inventory level is very typical.

6) In the IFFCO the inventory are divided into spares and generals. Generals are

those parts which are used normally in various machines, offsite while spares are

unique to its machines. There are two stores in IFFCO. In one store the inventory

of Aonla Unit 1 is stored while in other catalysts and various chemicals are

stored. For the transfer of spares from one store to another, a voucher is used that

is store transfer voucher (STV).

7) It clears that the person who raises the indent for the required material is known

as indentor. Indentor plays an important role in this. The indentor checks whether

that material that has purchased is according to his requirement or not. Indentor

can be any person.

8) Before the purchasing of the material, firstly enquiry takes place. This enquiry

can be done in two ways. Through the e-procurement or manual. After this

enquiry a QCS (quotations comparative statement) is prepared in which normally

technically acceptable lowest bidder is chosen. Thus the purchasing process

109

completes and the working of store department starts. Now the storing and

issuing is the responsibility of stores.

9) There is followed a coding pattern in IFFCO that is good for the proper

INVENTORY CONTROL. It helps the store’s employees in identifying the

spares and generals. This coding is of 12 digits. It avoids the confusion. Hence it

is good for the organization to do coding of the inventory. It highlights the

INVENTORY CONTROL.

10) There are various formats as STV, ISIRV, DCSRV, SAI, SIV etc which are used

for different purposes as for issuing the material from the store, store receipt

voucher (SRV) is used, for the adjustment of the materials, the store adjustment

voucher (SAV) is used.

11) The whole study shows that there is a good INVENTORY CONTROL system

but nothing is perfect that why there are also some limitations. In IFFCO a

history book of spares is used. It is prepared in both the form as a soft copy and a

hard copy.

12) For the controlling of the inventory a technique is used in IFFCO that is ABC

analysis. In ABC analysis spares and generals are divided in three categories on

the basis of their values. Some items have 70% value while their quantity is 20%.

The spares whose value comes under 20%, its quantity is present in 70%. While

there are some spares whose value is 20% as well as quantity is also 20%.

13) For the verification of inventories a technique is used in which the material

whose value is more is more than 50000, are verified 100%, the materials whose

110

value comes under 10001 to 50000 are verified 70% and the remaining materials

whose value is less than 10000 are verified 30%.

14) There is a company IFFCO- TOKIO General Insurance Company which is

responsible for the insurance of damaged and short materials. Firstly there were

different cooperatives which were associated with this task.

15) As we know that with the passage of time, some items becomes outdated or of no

use. They are known as obsolete items. The items which do not move up to 7

years are not valued according to its original value. There’s 40% value is written

off while they are valued at the 60% of their face value. The items which do not

move up to 7 to 10 years, are valued at 55% of their original value while 45% of

its value is written off. And the items which do not move more than 10 years, are

valued at the 50% of their face value and 50% is written off.

16) In IFFCO to ensure the availability of items or spares, they are inventoried.

There are decided various levels which shows the level of items that are stored in

it. These levels are minimum level, maximum level and reorder level. Re-order

level is that level at which new order is placed. These three levels are different

for different items. The item which are frequently used that is generals have the

high level of reorder.

17) Effective INVENTORY CONTROL enables an organization to meet or exceed

customers’ expectations of product availability while maximizing net profits or

minimizing costs. And the annual report shows that the inventory has decreased.

It shows that they are managing inventory in a better way due to which it has

decreased in compare to last year.

111

18) In IFFCO there is three type of inventory but IFFCO does not preserve the

finished goods inventory. IFFCO is a cost centre. Hence they do production but

just after accomplishing the whole process i.e. after packing the urea, they

transfer it in the rail bogie and send it to its marketing channel. And the

responsibility of Bareilly unit completes. They have owned its own rail bogies

and engine.

19) According to balance sheet It was found that the production has increased in

compare to last year because of capacity enhancement and increased demand.

That’s why the consumption of raw material as well as the inventory of raw

material has also increased. It is good for the organization.

20) In IFFCO the stock has decreased and current assets have also decreased. It

shows that the management has handled the inventory in the better and efficient

way. It is good for the organization as well as for the management.

21) Whenever the purchase department raises the tender then the enquiry is done in

two ways. First one is single stage, the items where there is no more chances of

technical deviation then the checking is done before loading the material and

indentor checks it later. While in two stage i.e. the stage where there are more

chances of technical deviation, checking is done before loading and after

receiving the materials. Expert performs this checking.

22) The ideal current is 2:1 while the calculation as per the balance sheet shows that

the current is more than two times of ideal . It shows that management of IFFCO

is handing the all inventory, sales, and machines in a great way. Even in the

current year the current has decreased in compare to previous year but the

organization is even in a good position.

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23) The cost of production of urea is much more than it’s selling price. This

difference in the cost is provided by the government that is subsidy from

government.

The whole report clears that the management of IFFCO is handling the inventory

in efficient ways even there is also some drawbacks but even after the

management is running the organization in a good way. The annual reports

shows that the inventory is decreasing in compare to last year and there is no

interruption in the production which shows the unavailability of inventory. It is a

indication that management is handling the inventory in a better way in compare

to previous year. And the investment has decreased in the inventory. This capital

may be used in some other productive work.

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SUGGESTIONS

1) Every week a report should be produced listing the status of every product that has

been in stock for less than six months. The report should list the following

information-

a. Items number and description

b. Total consumption of items ( in units)

c. Current-on-hand quantity

d. Minimum stock level of the item

e. Maximum stock level of the item

f. Re-order level of the item

g. Any new item that is required

h. Reason why that item was added to stock

2) Detailed record should be maintained by the management of store as well as purchase

department, for new stock items that do not meet six months consumption. Because

in the organization the number of obsolete items has increasing because of outdated

technology. Due to which the store department has to bear the maintenance cost and

carrying cost of obsolete items.

Thus the management should review the record time to time.

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3) The management of IFFCO should conduct some development programmes for the

knowledge of employees. IFFCO conduct various programmes for the farmer’s

knowledge and their awareness but not for their employees. As I have observed that

there were some managers who do not know the open of inventory software due to

which the working was hampering. And the remaining employees have to take extra

load of that work. It should not be there.

4) The management should not add new inventory. If it is deciding to store any new

inventory then the management should give the reason why management is going to

add new inventory. Thus the reason should be clearly stated.

5) If the cost of any inventory is high, then the management should find the substitute

material to decrease the cost of inventory.

6) The management should provide the necessary information to the supplier. As I have

noticed that the management of IFFCO tries to reserve its all information. Thus the

management should provide the necessary information to the supplier so that the

supplier can send the materials according to the requirement.

7) The business owner will need to do an initial count of everything in stock. The count

of all items in stock should be completely documented as well as all items that are

ready for sale. A recount can ensure accuracy. This will give the business owner a

starting point for inventory tracking. At this point, it may prove to be an advantage

for the business owner to use some kind of inventory tracking software application.

8) When new inventory is added to existing inventory, the first thing a business owner

should do is to check it for quality. Are any of the items dented or damaged? If so,

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they will need to be returned so that the business can get appropriate credit—

damaged items do no good sitting on storeroom or warehouse shelves.

9) The new inventory should be added to the count of the existing inventory,

particularly in the business documentation. This will help the business owner to keep

an adequate count of what is in stock.

10) When ordering it is advised not to over order or to under order stock; however, this

does not mean that the business owner shouldn’t take full advantage of what’s

available to them in terms of sales and discounts. If items bought in bulk are less

expensive, it is sometimes a good idea to purchase them that way. Essentially, the

business owner will need to make a judgment call and take the perish-ability of the

product into considen.

11) When ordering stock it is important that a business owner does not substitute quality

for quantity. In other words, cheap inventory is not necessarily good inventory and

buying less expensive products to increase one’s inventory could result in profit loss.

No matter what measures of inventory control that one puts in place, it’s always

imperative that quality products remain the first and foremost concern of the

business.

12) Getting the right amount of inventory is going to require a bit of speculative

projection on behalf of the business owner. The business operator is going to need to

guess how much they think they may sell in the coming months in order to order the

amount they need. By tracking inventory on a weekly or monthly basis, the business

owner will be able to identify predictable patterns of product use and sale. They can

then base their ordering process on such predictions. The end result is that over stock

and under stock of inventory is minimized.

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13) Diligent and regular tracking of inventory is recommended at all times. Further,

when counting inventory in a warehouse or business location it is imperative that all

counts are accurate. What good is inventory tracking if the calculations are all

wrong? Essentially, inaccurate calculations of inventory result in significant losses of

time and money for a business.

Thus the calculation should be accurate and right. There should not

be any deviation.

14) With so many other things that the business owner should be responsible for how

will they manage the time for inventory control? Small inventories are usually fairly

easy to manage, but what about warehouses and larger supplies? So the owner and

the store manager should take care of it.

15) INVENTORY CONTROL is not a process that can or should be avoided; it may be a

good idea for business owners to hire someone to be responsible for large

inventories. The management should hire one inventory consultant. Because he can

give better suggestion for inventory control. Inventory consultants know in a better

way how to handle and in how much quantity they should be stored.

16) The manager should be responsible for weekly or monthly stock counts and for

ordering and reordering products. This allows for the business owner to focus on

other aspects of the business’ open. Thus the manager should take care of it.

17) The management should follow all the rules and instructions. Documents should be

released at the issuing and other formalities. The management including the

employees should be aware of all functions of software.

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18) The management should do contract with the inventory consultancy. An inventory-

consulting agency can provide a business owner with a complete print out of their

current inventory. Thus, business owners have access to vital business documents

and the information they provide. When it comes time to insure the business or to run

an inventory check, a business owner can feel confident in knowing precisely what

they are expected to have.

Some inventory consulting agencies will actually handle all of the

ordering for the business. While this may seem like too much control to give to

another agency, some business professionals like they idea of relying on a

company to manage inventory. It leaves the business operator free to manage other

aspects of the business.

19) Another factor that every business owner must consider is the cost to insure

inventory. Let’s face it; the bigger the inventory the higher the premiums are for

insurance. Paying out additional funds for inventory can prove rather costly in the

long run. Again, to save businesses money, good inventory and warehouse

management are a must. Thus the management should take care that they should not

order too much heavy inventory. If yes then it should be insured.

20) The store manager must decide firstly what products they will need in the future and

precisely how much product to order. Thus they should order according to the

requirement.

21) As we know that there is coding system in the IFFCO. They make the process of

inventory simple. Items that are sold can be automatically subtracted from the

existing count. Some software applications automatically create and print a

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reordering document. This type of software should be installed in IFFCO. Even there

is PSL inventory software but the entry should be renewing time to time.

22) The consumption of all materials do not remain same overall the year. Thus the

maximum level, minimum level and reorder level should be review time to time.

Depending on the situation these levels should be flexible.

23) The purchasing process is directly related to the consumption and it can be easily

recognized only by reviewing their level in the store time to time. Before purchasing

any material first of all the purchase department should conduct enquiry to know

whether that material is present in the store or not. If present then in which amount

that material is present. It will help the management to reduce the overinvestment in

the inventory.

24) The materials which are not in use due to outdated technology, they should not be

kept because they cover the unnecessary place of the stores. I have seen that there

was a crane in the IFFCO and it was of no use because of outdated technology. But

even after that they have kept it. They should sell it to get some money to reduce its

maintenance and carrying cost.

If the management of IFFCO will follow these instructions then it

can handle or manage the inventory in a better way.

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BIBLIOGRAPHY

1) http://www.businessin.com

2) http://www.mapxl.com

3) http://www.invatol.com

4) http://www.inventorymanagement.com

5) http://www.effectiveinventory.com

6) http://www.toolwatch.com

7) http://www.opsinventory.com

8) Business world magazine

9) Business today

10) India today

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APPENDIX

INVENTORIES

As at 31-03-2010 As at 31-03-2011

Inventories (including goods-in-transit Rs. 277.63 crore)

Previous year Rs. 283.93 crore

Raw material 950.80 551.27

Stores and spares 336.42 311.74

Loose tools 1.83 2.25

Chemical and catalysts 28.94 30.81

Packing material 33.26 28.08

Construction material 14.72 12.45

Stock-in-process 36.89 26.44

Finished goods:

Traded products 59.56 86.07

Own manufactured 114.68 174.24 1234.83 1320.90

Total 1577.10 2283.94

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LIST OF GRAPHS

1) Inventory turnover

2) Working capital turnover

3) Current

4) Cash

5) Solvency

6) Stock to current asset

7) Raw material

8) Owned capital turnover

9) PBT to sales

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LIST OF ABBREVIATION

Q.C.S. Quotations comparison statement

T.O.I. Telex of Indent

T.O.P. Terms of Payment

F.O.R. Free on Rail / Road

M.P.R. Material Purchase Requisition

N.I.T. Notice Inviting Tender

S.O.R. Schedule of Rates

B.O.Q. Bill of Quantities

I.T.B. Invitation to Bid

F.O.B. Free On Board

C.I.F. Cost Insurance & Freight

5R’s Right Price, Right Quantity, Right Quality, Right Place, Right Source.

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QUESTIONNAIRE

1) How is the Item coding done in IFFCO?

2) What is the normal classification methods of inventory followed in IFFCO?

3) What are the documents received along with the consignment.

4) How is the sampling for inspection done?

5) At what stage of goods arrival, inspection is done?

6) What are the internal documents made from the time of receiving materials

till goods are moved to final location?

7) How do you handle rejections? Do you send materials back?

8) Do you allow sorting / repair? If yes, where is repair carried out?

9) Do you have expiry dates for the materials?

10) Do you make material requests to stores for issue of raw material?

11) Do you perform Inventory adjustments, value based or quantity based?

12) Do you perform Inventory receipts?

13) What the various types of analysis used for INVENTORY CONTROL?

14) Do you use re-ordering methods?

15) How do you determine the ordering quantity?

16) Do you perform 100 % item checks or random? If Random, what are the

criteria for selecting items?

17) Which inventory software is used for the convenience in inventory control?

18) On what basis inventory is divided into generals and spares?

19) How much inventory is stored in form of spares and generals in IFFCO?

20) Which pattern is followed for the payment against purchase?

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inventory control in iffco

Documents

ongc gail

brows inventory

deputy account

iffcos equity

store adjustment

store issue

store transfer

remaining