inventory management in iffco v

PROJECT REPORT

INVENTORY MANAGENENTON

INDIAN FARMERS FERTILIZERS CO- OPERATIVE LTD.

FOR THE PARTIAL FULFIILMENT OF REQUIREMENT OF

SUMMER INTERNERSHIP

SUBMITTED IN

SUBMITTED TO SUBMITTED BY

PROF. SHYAM AGRAWAL VIVEK AGRAWAL

FINANCE FACULTY PGDM (2009-11)

MIMS ROLL NO: 091110153

SUBMITTED BY

VIVEK AGRAWAL

PGDM (2009- 11)

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the Summer Project Study Report Title INVENTORY

MANAGEMENT submitted by Mr. VIVEK AGRAWAL as partial

fulfillment of requirement of the two year PGDM course is a bonafide

work carried out by student at our Institute.

This Summer Project Study is his original work and has not be submitted

to any other University/Institute.

Project Mentor Prof. (Dr .) ANUPAM

NARULA

Prof. – SHYAM KUMAR AGRAWAL Director-Academics

Date-

CONTENTS

ACKNOWLEGDEMENT

DECLARATION

ABSTARCT

INTRODUCTION OF COMPANY

PLANT UNITS

INVENTORY MANAGEMENT

ROLE OF PURCHASE

WAREHOUSE MANAGEMENT

DATA ANALYSIS

CONCLUSION & SUGGESTION

BIBLIOGRAPHY

DECLARATION

I am VIVEK AGRAWAL, Roll no. 091110153, a student of PGDM

fourth

Trisemester MANGALMAY INSTITUTE OF MANAGEMENT

STUDIES, Greater Noida, hereby declare that the summer training

Project report titled “INVENTORY MANAGEMENT” is the

original

Work and not presented in any other university.

Place:

Date: (Vivek

Agrawal)

ABSTRACT

In every organization, management is that part of the organization, which

is concern with planning, organization, directing and controlling of various

marketing activities to attain the business objectives. It is the science and

art of preparing plans and organize, then as well as direct the human being.

As a integral part of the curriculum, all the PGDM students are required to

undergo a practical training in some industry. The main objective of this

training is to supplement student’s theoretical knowledge with exposure to

practical operation of an organization. This provides the student with better

understanding of all functional areas of management and skills applied in

those functional areas.

In pursuance of the said requirement, I had my summer training at

“INDIAN FARMERS FERTILIZERS COOPERATIVE LTD”, one of the

biggest producers of chemical fertilizers in Asia.

The topic assigned to me for my project was “Inventory Management”. In

IFFCO, I had a contrast of both happiness and anxiety and had undergo

difficulties also but with the immense assistance proper guidance and

enough encouragement from IFFCO officials and staff, the work went of

smoothly and systematically.

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

INDIAN FARMERS FERTILIZERS COOPERATIVE

LIMITED

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

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

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

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 an unique venture in which

the farmers of the country through their own cooperative society 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 Fertilizers 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 fertilizers. The byelaw of the Society provide a broad

frame work for the activities of IFFCO as a Cooperative Society.

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

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

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

commissioned in 1988.

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

overall aegis of IFFCO VISION2000. The expansion projects at Aonla, Kalol, Phulpur

and Kandla have been completed on schedule. Thus all the projects conceived as part of

Vision 2000 have been realized without time or cost overruns. All the production units


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of IFFCO have established a reputation for excellence and quality. A new growth path

has been chalked out to realize newer dreams and greater heights through VISION

2010 which is presently under implementation. As part of the new vision, IFFCO has

acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of these

expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69

million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.

The distribution of IFFCO's fertilizer is undertaken through over 38155 co-operative

societies. The entire activities of Distribution sales and promotion are co-ordinate by

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

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

farmers through a chain of 158 farmers service centre (FSC). IFFCO has promoted

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

cooperative movement, improve Indian agriculture. Indian Farm Forestry Development

Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO

Foundation, Kisan Sewa Trust belong to this category. An ambitious project 'ICT

Initiatives for Farmers and Cooperatives' is launched to promote e-culture in rural

India. IFFCO obsessively nurtures its relations with farmers and undertakes a large

number of agriculture extension activities for their benefit every year.


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LOGO OF IFFCO

The Logo any organizations is very important by which the company is

Known to everyone or that is identity of the company. After one year of establishment

in 1968 the organization has decide to make Logo of IFFCO. The executive of the

company said that which can be easily fit any place or easily changeable according to

the place & made by simple geometrical method. So the Logo is made by at last Mr.

M.I.Gupta chief visualize developer is like that

Logo’s ratio is 1:2:5 and the color are green. The rectangle shows that the Indian

economy is depend upon the agriculture & green color shows the faith of the farmers,

they believe that after Using the urea their fields will always be green, the remaining

white color shows that the quality of the IFFCO’s product is very good & oval shape is

meant for prosperity.


VISION AND MISSION OF IFFCO

VISION:

To augments the increment income of farmers by helping them to increase their crop

productivity through balance use of energy efficient fertilizers, maintain the

environment health and to make co-operative societies economically & democratically

strong for professionalized services to the farmer community to ensure and

empowered rural India.

MISSION:

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

quantities with and objectives to increase crop productivity.

To make plant energy efficient and continually review various scheme to

conserve energy.

Commitment to health, safety, environment and forestry development to enrich

the quality of community life.

Commitment to social responsibility for strong social fabrics.

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

empowerment and innovation which would help in incremental growth of

employees and enable achievement of strategic objectives.

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

stimulating and challenging experience for state holders.

Building a value driven organization with an improved and responsive

customers focus. A true commitment to the transparency, accountability and

integrity in principle and practices.


VISION 2015

In pursuit of its growth and development, IFFCO had embarked upon and successfully

implemented its cooperate plan “Mission 2005” and “Mission 2010”. These plans have

resulted in IFFCO becoming one of the largest producers and marketers of chemical

fertilizers by expansion of its existing units, setting up joint venture companies

overseas and diversification into new sectors.

IFFCO has now visualized a comprehensive plan titled “VISION 2015” which will be

guided by the following objectives:

Production of fertilizers through expansion of existing units.

\

Setting up of fertilizers production facilities in India and outside the country

through joint ventures.

Diversification into other profitable sectors.

Strengthening its raw material sourcing through strategic joint ventures in India

and abroad.

Strategic alliances through IFFCO consortium.


ISO CERTIFICATION:

IFFCO has been giving continuous thrust to quality movement in all functional

areas. The Kalol unit was the first in the fertilizers industry to receive the ISO-

9002 international certification for quality assurance in production, installation

and services in august 1996, and this was re-certified from time to time. Phulpur

units were also certified by ISO-9002 international certificate in July 2000. Both

the Kalol and Phulpur units were considered by M/S bureau VERITAS quality

international (BVQI) for their quality system and awarded the certificate as per

new ISO 9001-2000. The Kalol unit has been upgraded to ISO 9001-2008 and

ISO 14001-2004 and OHSAS 18001-2007 has also been included. The Aonla

unit has received international certifications ISO 9001-2000, ISO 14001:2004

and OHSAS 18001: 2007. The adoption of an integrated management system

combining all the above systems is also in progress. The Kandla unit had

received ISO 14001: 2004 certification.


FINANCIAL PERFORMANCE

As per its tradition, the societies has again exhibited an impressive financial

performance in all its major parameters, namely, Revenue growth and Resource

utilization, testifying to the robustness of its corporate strategies of creating multiple

drivers of growth in spite of constraints in the availability of raw materials, the Global

economic meltdown and inordinate delays in receipt of large subsidy amount of

government of India.

The society achieved the highest ever sales turnover of Rs 32933 crores. This

represents an increase of Rs 170 % over the previous year. While the sales volume

of fertilizer materials increased by 20% to Rs 112.58 lacs MT fertilizers during 2008-

09, as against 93.24 lacs MT in the previous year, the major increase in the sales

turnover was on account of substantial increase in the commodity prices.

DIVERSIFICATION

IFFCO-TOKIO General insurance co. limited pursuant to IFFCO’s plan to diversify

into areas other than fertilizers, IFFCO & TOKIO marine and fire insurance company

limited. Japan established a joint venture known as IFFCO-TOKIO GENERAL

INSURANCE CO. LTD (ITGI) for undertaking general insurance business in India.

IFFCO has subscribed to 51% equity in the share holding of ITGI followed by

KRIBHCO with 20% and Indian Potash ltd. With 3% and 26% equity has been

subscribed to Tokyo – marine and fire insurance co. Ltd.


INFORMATION AND COMMUNATION TECHNOLOGY

IFFCO has set up a hybrid wide area network (WAN) connecting its head office, all

production units, all zonal, state and area marketing offices using leased lines, VASTS

and ISDN lines. The hub of the networks is the Resource Centre, Gurgoan. The WAN

has been integrated with LAN at these offices and has become a lifeline of the

organization for messaging, data transfer, online replication, voice communication,

access to various remote applications and troubleshooting. Robust security with

firewall protection to check unauthorized access has been setup.

To provide uptime of WAN links near to 100 % for critical applications, for example,

dispatch, e-procurement, sales and distribution systems etc, additional backup 2 Mbps

links have been provided to all the units and the head offices, Delhi, with a redundant

link to the township of Kandla unit. These are in addition to the links from BSNL and

AIRTEL.

HUMAN RESOURCE MANGEMENT SYSTEM (HRMS)

Suite of 25 applications covering complete life cycle of an employee from

recruitment till retirement including post retirement benefits.

Integration with accounts.

Replication/ sharing of data amongst all units/ office for consolidation ,

monitoring & MIS

Bi-lingual report facility for employee communication.

Unique ID for all employees.

Data gets replication to other units in case of transfers, promotions etc.


PROFILE OF PRODUCTS AND SERVICES

1. UREA

IFFCO's Urea is not merely a source of 46% of nutrient nitrogen for crops, but it is an

integral part of millions of farmers in India. A bag of IFFCO's urea is a constant source

of confidence and is a trusted companion for Indian farmer.

2. BIO – FERTILIZERS

A biofertilizer unit was established at Cooperative Rural Development Trust, Phulpur

(Uttar Pradesh) in 1996 - 97 and other at Kalol (Gujarat) in 2003-04 with an annual

capacity of 75 MT and 165 MT respectively of different cultures such as Rhizobium,

3. AMMONIUM PHOSPHATE SULPHATE

It is the most widely used fertilizer in the country. It is a white crystalline salt,

containing 20 to 21 percent ammoniac nitrogen and 17 percent Phosphates. Being

soluble in water, it acts quickly, but despite its high solubility, its nitrogen is not readily

lost in drainage, because the ammonium ion is retained by the soil particles. it is,

therefore, very suitable for wet-land crops

4. NPK (Nitro-Phospho-Potassium)/DAP (Diammonium Phosphate )

As far as Indian farmer is concerned, IFFCO's NPK/DAP is a source of crucial

nutrients N, P, K for the crops. The two grades of NPK produced by IFFCO, 10:26:26

and 12:32:16, indicating the content of N, P, K proportion, are tailor made to supply the

exact composition required for replenishment of the soil.


IFFCO ASSOCIATES AND SUBSIDIARY COMPANIES

1) IFFCO-TOKIO General insurance company private ltd.

2) IFFCO Sanchar private ltd.

3) IFFCO Chhattisgarh power ltd.

4) Indian Farm Forestry Development Cooperation Ltd

5) Cooperative Rural Development Trust

6) Oman Indian Fertilizers Company SOC, Oman

7) National Commodity And Derivative Exchange Ltd

8) Indian Potash Ltd

9) Jordan Indian Fertilizers Ltd

10) Kisan International Trading F Z E, Dubai

11) IFFCO Kisan SEZ

12) Legend International Holding

13) IFFCO Kisan Bazaar Ltd

14) Industries Chimiques DU Senegal, Senegal

15) National Collateral Management Services Ltd

16) IFFCO Foundation


PERFORMANCE HIGHLIGHTS 2009-10

Highest Production of fertilizers 81.98 lacs MT

(Previous best 71.68 lacs MT in 2008-

09)

Highest Production of Urea 43.24 lacs MT

(Previous best 40.68 lacs MT in 2008-09)

Production of NPK/DAP/NP 38.74 lacs MT


Highest sales of Fertilizers 118.27 lacs MT

(Previous best 112.58 lacs MT in 2008-

09)

Highest sales of Urea 63.35 lacs MT


Highest sales of NPK/DAP/NP 54.92 lacs MT

(Previous best 53.89 lacs MT in 2008-09 )

Profit before TAX Rs 567.28 crores

(best PBT Rs 807.09 crores in 2002-03)

Profit after TAX Rs 401.10 crores

(best PAT Rs 557.21 crores in 2002-03)

Total turnover Rs 16808 crores

(previous best Rs. 32933 crores in 2007-

08)

Plant Productivity 1608 MT per employee

(Previous best 1699 MT in 2005-06)

Highest Marketing productivity 7885 MT per employee

(Previous best 7397 MT in 2007-08)


INTRODUCTION TO THE PLANT UNITS OF IFFCO

DEPARTMENT OF IFFCO PLANT UNITS

IFFCO department unit is divided into following parts:

Ammonia plant

Urea plant

Power generation plant

Off site

Product handing plant

Ammonia Plant

There are 2 plants of Ammonia, Ammonia-I and Ammonia-II. Each ammonia plant is

designed 1350 MTPD liquid Ammonia.

Raw –material, for producing Ammonia is NATURAL GAS.

PRODUCTION PROCEDURE

Hydrogen and Nitrogen are mixed in the ratio 1:3 to produce Ammonia N113. Source

of nitrogen gas is supplied from GAIL (Bombay High). These gases are mixed with

stream and then send to primary reformer, further refining is done as secondary

reformer where we add air to it. Hot gas from secondary reformer is cooled by heat

recovery plant. Now this process gas is introduced to shift converters. Here CO is

converted to CO2, and then gas sends it to G.V CO2 removal tanks, where CO2 is

removed. This CO2 is then sent to Urea plant to produce Urea.


UREA PLANT

Physical and chemical properties:-

Molecular weight = 60.25

Melting point = 132.60

Boiling point = decomposes at atmospheric pressure.

USES

As fertilizers in agriculture.

As cattle feed.

As an important raw material of industrial household product.

MATERIAL DEPARTMENT

Materials are the most important inputs of any business firm organization. Proper

handling and control of material inputs ensures the smooth functioning of plant.

Material management included the procurement issuance and control of material in

right quantity and at right time to facilities the production function.

From this we can gather that material management includes 2 important functions:

Purchasing.

Storing and control of materials.


PERFORMANCE OF PLANTS

Production:

Since its inception, the plants have cumulatively produced 1109.03 lacs MT fertilizers

materials compromising 671.70 lacs MT of urea and 437.33 lacs MT of NPK/DAP up

to the period ending 31st march’09 . During the year 2008-09, IFFCO has produced

highest ever 71.68 lacs MT of fertilizers consisting of 40.68 lacs MT of Urea and 31

lacs MT NPK/DAP.

UNIT 2008-09 2009-10

PRODUCTION (LACS MT)

CAPACITY UTL. (PER CENTAGE)

PRODUCTION (LACS MT)

CAPACITY UTL. (PER CENTAGE)

UREA

Kalol 5.60 102.8 6.00 110.2

Phulpur –I 6.63 120.3 7.23 103.5

Phulpur – II 8.40 97.2 10.00 100.0

Aonla – I 9.87 114.1 10.00 100.0

Aonla –II 10.18 117.8 10.01 100.0

Sub Total 40.68 110.3 43.24 101.9


NPK/DAP

Khandla 17.94 74.3 23.74 98.3

Paradeep 13.06 68.0 15.00 78.1

Sub Total 31.00 71.4 38.74 89.4

Total Production

71.68 89.2 81.98 95.6

Sales Performance

The rain in the current year was not very conductive from agriculture point of view.

The food grains production in the year 2008-09 is estimated at about 228 million tonnes

as against 247 lacs tonnes in 2007-08. The fertilizers consumption in the country during

2008-09 is estimated at 247 lacs tonnes of NPK as against about 226 lacs tonnes as

against 226 lacs tonnes of NPK achieved during 2007-08 representing 9% increase.

SALES OF FERTILIZERS MATERIAL


MATERIAL 2009-10 2008-09

UREA -Own 43.22 40.71

- imported 20.13 17.98

Sub total 63.35 58.69

NP/NPK 27.94 24.47

DAP/MAP – own 11.14 6.88

- imported 15.84 22.54

Sub total 26.98 29.42

Total (NPK/DAP) 54.92 53.89

TOTAL (UREA + NP/NPK+DAP)

118.27 112.58


DISTRIBUTION NETWORK:

IFFCO distribute its fertilizers in 29 states/ UTs in the country through the cooperative

system. As a policy, IFFCO is channelizing its entire production and imports through

the cooperative network.

IFFCO sells its fertilizers through a network of about 39.862 cooperative societies in

different states. Nearly 60 percent of the material was sold directly to societies whereas

35 percent was routed through federations. About 5 % fertilizers are sold through 158

farmers’ service centers (FSC) run by IFFCO.

HIERARCHY IN IFFCO


LINE OF CONTROL IN FINANCE ACCOUNT

DEPARTMENT


AWARDS WON BY IFFCO

Prestigious Economic Times, Acer and Intel Smart Workshop Award in the

manufacturing and industrial segment.

“ Best Content Service ” as well as the “Best Project Management” in respect

of IFFCO Kisan Sanchar Limited at the World Communication Award Held At

London.

Best Cooperative Society Award from Public Relation Society of India (PRSI)

At Its Golden Jubilee Ceremony in Mauritius.

IFFCO UNITS:

KALOL UNIT

“National Energy Conservation Award -2008”(2nd Prize) From Ministry Of

Power, Govt. Of India.

Gujarat state safety award 2007 for lowest disability injury index (DII) in the

category of chemicals, fertilizers and distillers for the fourth conservative year.

PHULPUR UNIT

First prize for “National Energy Conservation Award -2008” in fertilizer

sector instituted by bureau of energy efficiency, ministry of power, govt. on

India.

“Golden Jubilee Award” in recognition and appreciation of extraordinary

accomplishment and contribution to the nation from Chamber Of Commerce &

Industry (Eastern U.P)


AONLA UNIT

“Golden Peacock Environment Management Award-2008” during

convention on climate changes by world environment foundation.

“National Award for Excellence in Energy Management-2008” from

confederation of Indian industry (CII) as “Energy Efficient Unit”.

Aonla unit bagged “TERI Corporate Environment Award 2009” for its

effort towards environmental management and inanition initiative.

PARADEEP UNIT

PARADEEP UNIT has won the FAI award for “Improvement in Overall

Performance” for the year 2008-09.

FAI Award for “Best Technical Innovation” implemented in the field of

fertilizers technology for the year 2008-09.

Paradeep unit also been awarded the “The Best Importer” for the year

2008-09 from the Paradeep Port Trust.

KANDLA UNIT

“SUN and NDTV Green It Award” under category of technology for a greener

workplace (1st prize).


ROLE OF INVENTORY MANAGEMENT

Management inventories constitute the most significant part of all the companies. On

an average, inventories are 60% current assets in India. Because of large size of

inventories maintained by firms, a considerable amount of funds is required to be

committed to them. It is therefore, absolutely imperative to manage inventories

effectively in order to avoid unnecessary investment. It is possible for a company to

reduce its level of inventories to a considerable level without any adverse effect on

production and sales, by using simple inventories planning and control techniques. It

was the period of mid 60’s the co-operative sectors in India, was holding the

responsibility for distribution of 70% of fertilizers consumed in the countries. Te

sector had adequate infrastructure to distribute fertilizers. But no production facilities

of its own and hence was dependent on public private sector for supply. To overcome

this lacuna and bridge the demand and supply gap in country, a new co-operative

society was conceived to specifically cater the requirement of the farmers. The

number of co-operative society attached with IFFCO has risen from 57 in 1967 to

37333 in March 2005.

IFFCO “Indian Farmers Fertilizers Co-operative Limited” was established on 3 rd

Nov.’67 as a multiunit co-operative society engaged in production and distribution of

fertilizers. The bylaws society provides a broad framework from act of IFFCO as a co-

operative society. The emphasis is on production and distribution of fertilizers. In

order to fulfill these objectives IFFCO has set up KARLOL plant for manufacture of

nitrogenous fertilizers and KANDLA for manufacture of phosphates fertilizers. IFFCO

has emerged as ASIA’s largest fertilizers co-operative with its four modern

sophisticated plant at KALOL and KANDLA in Gujarat and PHULPUR and AONLA

in U.P. IFFCO is country’s largest producers of nitrogenous and complex fertilizers

with the total production capacity of 5.88 million tons and contributes aprox. 20% of

the fertilizers produced in the country.

The distribution of IFFCO fertilizers is undertaken through over 37337 co-operative

societies. The entire activities of distribution, sales are assisted by marketing offices in

the fields. In addition, essential agriculture inputs for crop production are made


available to the farmers through a chair of 167 service canter also. The total paid up

share capital as on the date stands at over Rs 456.87crores.

What Does Inventory Mean?

The raw materials, work-in-process goods and completely finished goods that are

considered to be the portion of a business's assets that are ready or will be ready for

sale. Inventory represents one of the most important assets that most businesses

possess, because the turnover of inventory represents one of the primary sources

of revenue generation and subsequent earnings for the company's shareholders/owners.

Inventory management forecasts and strategies, such as a just-in-time inventory system,

can help minimize inventory costs because goods are created or received as inventory

only when needed.

Types of inventory

Inventory of raw materials

Inventory of stores and spare parts

Inventory of work-in-progress

Inventory of finished goods


Inventory Management

Inventory management is primarily about specifying the size and placement of stocked

goods. Inventory management is required at different locations within a facility or

within multiple locations of a supply network to protect the regular and planned course

of production against the random disturbance of running out of materials or goods. The

scope of inventory management also concerns the fine lines between replenishment

lead time, carrying costs of inventory, asset management, inventory forecasting,

inventory valuation, inventory visibility, future inventory price forecasting, physical

inventory, available physical space for inventory, quality management, replenishment,

returns and defective goods and demand forecasting. Balancing these competing

requirements leads to optimal inventory levels, which is an on-going process as the

business needs shift and react to the wider environment.

Management of the inventories, with the primary objective of determining/controlling

stock levels within the physical distribution function to balance the need for product

availability against the need for minimizing stock holding and handling costs.

The Reasons For Keeping Stock:

There are three basic reasons for keeping an inventory:

1. Time - The time lags present in the supply chain, from supplier to user at every

stage, requires that you maintain certain amount of inventory to use in this "lead

time".

2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in

demand, supply and movements of goods.

3. Economies of scale - Ideal condition of "one unit at a time at a place where user

needs it, when he needs it" principle tends to incur lots of costs in terms of

logistics. So bulk buying, movement and storing brings in economies of scale,

thus inventory.


Purpose of Inventory Management:

Inventory management must be designed to meet the dictates of market place and

support the company’s Strategic Plan. The many changes in the market demand, new

opportunities due to worldwide marketing, global sourcing of materials and new

manufacturing technology means many companies need to change their Inventory

Management approach and change the process for Inventory Control.

Inventory Management system provides information to efficiently manage the flow of

materials, effectively utilize people and equipment, coordinate internal activities and

communicate with customers. Inventory Management does not make decisions or

manage operations; they provide the information to managers who make more

accurate and timely decisions to manage their operations.

It is strategic in the sense that top management sets goals. These include deployment

strategies (Push versus Pull), control policies, the determination of the optimal levels

of order quantities and reorder points and setting safety stock levels. These levels are

critical, since they are primary determinants of customer service levels.

VMI reduces stock-outs and optimize inventory in supply chain . Some features of

VMI include:

• Shortening of Supply Chain

• Centralized Forecasting

• Frequent communication of inventory, stock-outs and planned promotions

• Trucks are filled in a prioritized order.

Despite the many changes that companies go through, the basic principles of Inventory

Management and Inventory Control remain the same. Some of the new approaches

and techniques are wrapped in new terminology, but the underlying principles for

accomplishing good Inventory Management and Inventory activities have not

changed.


Benefits of Inventory Management:

• Help reduce purchasing and inventory costs. Connect inventory control, purchasing,

and sales order processing with demand planning and help reduce costs, improve cash

flow, and help ensure that you have the right stock available when you need it.

• Gain visibility into inventory processes. Effectively balance availability with demand

and track items and their possible expiration dates throughout the supply chain to help

minimize on-hand inventory, optimize replenishment, and increase warehouse

efficiency.

• Improve customer satisfaction. Make more accurate order promises and intelligent

last-minute exceptions with access to up-to-date inventory information. Respond

quickly and knowledgably to customer queries for improved customer service.

• Reduce time to market. With integrated order, inventory, and distribution processes, as

well as item tracking capabilities, your business can reduce manual data entry and get

your goods to market fast.

Symptoms Of Poor Inventory Management:

A certain numbers of symptoms allow discovering poor inventory management. They

are as follows:

Increasing number of back orders.

High customer turnover rates.


Increasing numbers of cancelled orders.

Large quantities of obsolete items.

Periodic lack of sufficient space.


Inventory Management Improvement:

It has been identified that there are six activities which may help in improvement of

inventory management. These activities will be explained in order to provide some

background information on improvement of inventory management.

Top management commitment. Because lower inventories have impact on

many different parts of logistic systems, senior leadership must ensure that all

of those activities are working together to meet customer needs without the

luxury of excess stock.

ABC analysis of all inventory items. Management must first understand that

the goods in inventory are the most important in terms of their contribution to

the objectives of the organization.

Improved performance of other logistics activities. Manager should ensure that

the rest of the logistic system is functioning efficiently. It may be those

inventories policies have evolve as a way to obscure other problems that

should be dealt with directly. By reviewing transportation, order processing

and warehousing functions, for example, management may find order- cycle

variability can be reduced by improving those activities that would lower the

need for inventory.

Improved demand forecasting. Demand forecasting is also a way of reducing

variability, this time in terms of expected versus actual sales. Better forecasting

techniques can be utilized to more accurately predict actual sales.

Inventory management software. Software is currently available for inventory

management situation and allows managers to tracks sales by items, costs

length of time in inventory and other vector as well.


Inventory Management Policies:

Inventory control is the managerial procedure for implementing inventory

policies. The accountability aspect of control measure units on hand at a

specific location and tracks additions and deletions. Accountability and tracking

can be performed a manual or computerized basis.

Inventory control defines how often inventory levels are reviewed to

determined when and how much to order. It is performed on either a perpetual

or a period basis. To the most effective, the inventory control system must also

provide information in timely manner to allow you to make decisions while

problems can still be corrected.

Two models are usually used to control inventories:

Perpetual review: a perpetual inventory control process reviews

inventory status daily to determine inventory replenishment needs. To

utilize perpetual review, accurate tracking of all stock keeping units is

necessary. Perpetual review is implemented through a re-order point and

other quantity.

Periodic review: periodic inventory control review, the inventory status

of an item at regular time intervals such as weekly or monthly. For

periodic review, the basic re-order point must be adjusted to consider the

extended intervals between reviews.


Reactive methods: the reactive or pull system, as name implies, responds to a

channel member’s inventory needs by drawing, the products through the

distribution channel. Replenishment shipments are initiated when available

warehouse stock level fall below a predetermined minimum or order point. The

amount ordered is usually based on some lot- sizing formulation, although, it

may be some variable quantity is a function of current stock levels and a

predetermined maximum level.

Classical reactive inventory logic is rooted in the following assumption. Firstly,

the system is founded on the basis assumption that all customers, market areas

and products contribute equally to profits.

Secondly, reactive inventory logic assumes infinite capacity at the source. This

assumption implies that products can be manufactured as desired and stored at

the production facility until required throughout the supply chain.

Mostly reactive system decision rules assume demand patterns based on

standard normal, gamma or Poisson distribution. When the actual demand

function does not resemble one of the above functions, the statistical inventories

decision rules based on these assumptions will not operate correctly.

Planning methods: inventories planning methods use a common information

base to coordinate inventory requirements across multiple locations or stages in

the supply chain. Planning activities may occur at the plant warehouse level to

coordinate inventory allocation and delivery to multiple destinations. Planning

may also occur to coordinate inventory requirements across multiple channel

partners such as manufactures and retailers.

a) Fair share allocation: Fair share allocation is a simplified inventory

management planning methods that provided each facility with an equitable


or “fair share” of available inventory from a common source such as a plant

warehouse. Using fair share allocation, the inventory planner determines the

amount of inventory at the plant.

b) Distribution requirements planning (DRP): DRP is a more sophisticated

planning approach that considers multiple distribution stages and their

unique characteristics. DRP is the logical extension of manufacturing

requirement technique (MRP), although there is one fundamental difference

between the two techniques.

Adaptive logic: a combined inventory management system may be used to

overcome some of the problems inherent in rising either or a planning method.

The factors that might make a reactive system better in one situation may

change over time to favor the use of an inventory planning system. Thus, the

ideal approach is an adaptive inventory management system that corporate

elements of both types of logic and allows different strategies to be used with

specific customer or product segments.


Cost formulae for determining cost of inventories

Weighted Average Method


IFFCO are using weighted average method. Under this method the issue price is

calculated by dividing the value of materials in hand by the number of units in

hand. Thus it takes into account both quantities and money value for arriving at the

issue rate. Whenever a new consignment is received, a new weighted average price

is calculated by adding the value of the consignment to the cost of stock in hand.

The rate thus, calculated is used to price all issues until a new consignment is

received. The method is more scientific as it smoothens the fluctuations in purchase

price. Further, inventory is valued at one rate.INVENTORY VALUATION

AT IFFCO

Inventories are valued at lower of cost or net realizable value.

a) The cost in respect of various items of inventory is computed as under:

Raw Materials, Packing Materials, Construction Materials, Loose Tools in

Stock, Chemicals & Catalysts in Stock and Stores & Spares at monthly

weighted average cost.

Stock-in-Process at direct cost and an appropriate portion of overheads.

Finished Goods:

- Manufactured Nitrogenous Fertilizers covered by Group Concession Scheme at

Annual Cost of Production at Plant after adjustment of subsidy as determined as per the

Revised Norms of the Fertilizer Industry Coordination Committee (FICC).

- Manufactured Phosphatic Fertilizers at Annualized Cost of Production at Plant plus

freight unto the warehouses after adjustment of subsidy as estimated in accordance with

known policy parameters in this regard.

- Imported Nitrogenous Fertilizers at procurement cost plus direct expenses less

reimbursement of handling cost as fixed by the Government of India.


- Imported Phosphatic Fertilizers at procurement cost plus direct expenses after

adjustment of subsidy as estimated in accordance with known policy parameters in this

regard.

b) Net realizable value of Finished Goods is determined at estimated selling price in the

ordinary course of business less the estimated costs necessary to make the sale.


INVENTORIES CONTROL

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

of materials in such a way as to maintain an even flow of production and at the same

time avoiding excessive investment in inventories. An efficient material control reduces

loses and wastage of material that otherwise pass on notice.

Inventory control is an important part of material management. The need and

importance of inventories various in direct proportion to idle time cost of men and

machinery and the urgency of requirement. If men and machinery and the factory could

wait and so could customers, materials would not lie in want for them and no

inventories needs to be carried. But it is highly uneconomical to keep men and

machinery waiting and requirement for modern life are so urgent that they can’t wait

for materials to arrive after the need for them has arisen. Hence, firms must carry

inventory.

NEED OF INVENTORIES

ORGANISATIONAL: inventories are maintained to widen the latitude in

planning and scheduling successive operation. Raw material inventories

enables a firm to decoupage its purchase and production.

PROCESS: inventory provides flexibility in production schedule so that an

efficient schedule and high utilization of capacity may be attained. Without

work in progress inventory, a bottleneck at any stage in the production

process may be render ideal the machine and facility at subsequent stages.

In adequate process inventory may result in delay of production and ideal

facilities.

FINISHED GOODS: inventories enable a firm to decoupage its production

programmers and marketing activities so that desirable result may be

achieved on both the fronts. If the adequate finished goods are available,

the marketing department can meet the needs of the customer promptly,


irrespective of the quality and composition of goods flowing out of the

production line currently.

Thus, firm may established a programmed inventory monitoring and control consisting

of the following elements:

Exercise of vigilance against imbalance of raw materials and work in progress

which tends to limit the utility of stocks.

Vigorous efforts to expedite completion of unfinished production jobs to get

them into salable conditions.

Active disposal of good that is surplus, obsolete or unusual.

Strict adherence to production schedule

Special pricing to disposal of unusually slow moving items.

Change in design to maximize the use of standards parts and components,

which are available off the shelf.

OBJECTIVES OF INVENTORY CONTROL

Scientific control of inventories should serve the following purpose:

To provide the continuous flow of required materials, part and component

efficient and uninterrupted flow of production.

To minimize investment in inventories keeping in view of operating

requirement.

To provide facility for efficient storage of materials so those inventories are

protected from loss fire and theft & handling time and cost keep minimum.


TECHNIQUE OF INVENTORY CONTROL:

Reduction of surplus stock is an essential requirement effective inventory control.

Various techniques of controlling the inventories are as follows:-

1. Mini- max plan.

2. The two bin system.

3. Order cycling system.

4. Fixation of various levels.

5. Control ratio.

o Mini Max Plan:

This is the oldest method of inventory control. In this plan, analysis lays down a

maximum and minimum for each stock item. Minimum establishes the reorder

point and order is placed for quantity of material, which will bring it to the

maximum level.

o The Two Bin System:

The basic procedure is that for each item of stock, two piles or bundles of bins

are maintain. The first bin stocks that quantity of first, which is sufficient to meet

its usage during the period that elapses between receipt of order material and the

placing of next door. The second bin is tapped, a requisition for new supply is

prepare and given in purchase department.

o Order cycling system:

In this system, quantities in hand of each items or class of stock are received

periodically (30/60/90 days). 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 entire

probable rate of depletion, an order is placed to replenish its supply.


oFixation of various levels:

Certain stock levels of fixed level are given below:

A) Maximum level: It represents minimum quantity above which stock should

not be held at any time. Stock above maximum leads to a higher, Inventory cost

to the organization.

Maximum stock = re-order + reorder quantity (minimum level

consumption * minimum reorder period)

B) Minimum level: It represent minimum quantity of stock that should be held

at all the time. Stock below minimum level my lead to the interruption in

production scheduled. The minimum level can be calculated by the

following formulas: minimum level = reorder level-(normal

consumption + normal reorder period).

o Control ratios : Inventory turnover ratio helps management to avoid capital

being locked of unnecessarily. This ratios revels the efficiency of stock keeping.

Inventory turnover ratio is given by: cost of material consumed / cost of average

stock held during the period.

Where cost of average stock = (cost of opening stock + cost of closing stock)/ 2

Calculation in days:


Days during the period/inventory turnover ratio reveals the number of days for

which the stocks are held.

OBJECT

Inventories have to be properly valued because of the following

Reasons:

o Determination of current income.

o Determination of financial position.

o Computation of ratios.


E-COMUNICATION AND CONTROL ON INVENTORY IN

IFFCO

E- RAIL FACILITY:

IFFCO is a regular client of Indian Railways. So, they have given a special facility to

IFFCO, by providing a separate website attached with Indian railway sites so that they

can easily track the location of their rakes, which have been loaded with Urea’s and

fertilizers, travelling from plant location to the respective rake points. From there, the

material would transfer to the warehouses for storage.

In IFFCO, there are 2 modes of supply of inventories from plant location to the

warehouses and respective societies. They are as follows:

a) Railways

b) Roads

Railways:-

It is widely used mode of transport, used by IFFCO for the supply of fertilizers and

urea.

Generally, as soon as the goods are loaded in the rakes, a Dispatch Advice (D.A) is

generated by the stock manager of the plant, which contains all the required

information related to the materials i.e. quantity, type of fertilizer, rake number, date of

dispatch etc.

As, the rake arrives to the regional rake point, the RR is handed over to the authority

i.e. field officer of that point and officer got responsible to send the Rake Receipt (RR)

to the plant, after proper checking of quantities with DA, through their WAN

communication network i.e. E-VIKAS.

This whole process is completely computerized. The web site which railway has given

to the organization, help them in tracking the rake position on time and it save lots of

resources of them.

ROAD:


Another mode of transport used by IFFCO is road. It is generally used to transfer the

material to the nearby areas of the plants.

IFFCO use this mode to distribute its finished goods to the warehouses within the range

of 100 – 150 kms. This done through trucks along with the dispatch advice and the

same procedure is being used.

This mode of supply is not very much profitable for the company because –

No feasibility

Not economical

Time taking


OVERVIEW OF INTERNAL CONTROL RELATING TO

INVENTORY

Internal control refers to the norms through which a particular activity can be carried

out.

In IFFCO, the material is purchased in the following norms:

Steps:

1. For raw material, the particular department will issue MRP (material purchase

requisition) notes, to the purchase department.

2. On the basis of MRP note, the purchase will be issue tender or will intimate to

registered parties for the quotation.

3. On the basis of quotation the committee will decide which party is competent for

the requisite material.

4. After decision the purchase department will issue purchase order to the competent

party.

5. These purchase order will be issued to for the concern parties-

a) Suppliers

b) Account section

c) Purchase account

d) Store

6. After purchase and supply of material, the indent department will inspect the

material.

7. After inspection, all the material will be issue according to their own norms.

8. After storing , the store department sends SRV (store receipt voucher) notes to the

following department –

a) 1 copy to the purchase department

b) 1 copy to the indent department

c) 2 copy to the accounts department

d) 1 copy to lies to the store department itself.


9. After pricing the SRV by the billing section of F & A department and after receipt

of invoice from the supplier, the accounts section will issue the cheque to the

concerned party for the value received.

DIFFERENT VOUCHERS IN IFFCO

In IFFCO, there are 3 types of receipt and issue vouchers, generally used for the

particular receipt and issue materials. The lists are as follows:

Receipt vouchers:

a) SRV (store receipt voucher)

b) ISRV (internal store receipt voucher)

c) DCSRV (direct consumer store receipt voucher)

Issue vouchers:

a) SIV (store issue voucher)

Adjustment vouchers:

a) SAV (stock adjustment voucher)

b) STV (stock transfer voucher)


ROLE OF PURCHASE FUNCTION IN IFFCO

The purchase department, in any organization, is at the interface of internal and

external environment. This department is responsible for purchase of various machines,

raw materials and other items required by the organization. Purchase function from

integral part of material management and it play very important function as it through

this procedure that the right amount of material required is delivered at the right place

and at the right time so that the process of production or manufacturing goes on

unhampered.

The purchase department of an organization must know following things:

Knowledge of the material.

Source of material – vendors

Reasonable price

The most important things is the indenter must trust the vendors.

Purchasing can also be seen as either strategic or transactional. Also the word “direct”

and “indirect” have been used to distinguish the two types: strategic (direct) buying

involve the establishment of mutually beneficial long term relationship between buyers

and sellers. Usually strategic buying involves purchase of material that are crucial to

the support of the firm’s distinctive competence. This could include raw material and

components normally used for production process. Transactional (indirect) buying

involves repetitive purchases from same vendor, probably through a blanket purchase

order. These orders could include products and service not listed on the bills of

materials but is used indirectly in producing the items.In more specific terms, today’s

purchasing departments are responsible for:

Coordination purchase needs with user departments.

Identifying potential suppliers.

Conducting market studies for material purchases

Proposal analysis

Suppliers selection

Issuing purchase orders

Meeting with sales representatives


PURCHASE PROCESS

Recognition Needs: The purchase order is made by the purchase department

when it feels necessary and on the request of indenting department.

Requisition to purchase: this is an intimation to purchase department by the

indenter that the needed certain material. He raises request by filling form as

material purchase requisition (MRP). In this he furnishes various information:-

a) Name of the item & its code no.

b) Amount required

c) Estimated price

d) Required delivery date

e) Suggested vendors

f) Section/ department Code no.

MRP security: in this step, scrutinizing of the MRP to certified the genuinely

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

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

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

further action. Here it is scrutinize in three ways:

a) Approval scrutiny

b) Budget scrutiny

c) Technical scrutiny

Sending or enquiry/invitation to bid:

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

brought from particular supplier or vendor.

Non proprietary 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 3 ways:


Proprietary bidding

Limited tender enquiry

Press tender/open bidding: if the amount of purchase involves

more than 3 lacs and item is non proprietary then press tender is

issued in newspapers.

Receiving Of Offers: after all bids have been submitted the tenders are open

before tender committee to compare the quotations. Quotation comparison

statement (QCS) is made and bid with lowest quotation is generally chosen.

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 materials to

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

vendor 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 the P.O per

week.

Receipt of Material: after the consignment reaches the stipulated place, the

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

upon the two parties. The material is checked for quality conditions and then

sent to the store where the store releases the “Store Receipt Voucher”, from here

it is delivered to the vendor.

Follow Up Done For Every Order: it may be regarding delay in supply

changes in prices, defective or damaged items supplied etc. For every indent a

separate file is opened and correspondence goes on.


FACTORS FOR PURCHASING

The importance of purchasing is any firm is largely determined the four factors:

Availability of materials

Absolute dollar volume of purchases

% of product cost represented by material

Types of material purchased.

Purchasing must concern itself with whether or not the materials used by the firm are

readily available in the competitive market or whether some are brought in volatile

markets that are subject to shortages and price instability.

If the form spends a large percentage of its available capital on materials, the sheer

magnitude of expense means that efficient purchasing can produce a significant

savings. Even small unit saving add up quickly when purchased in large volume. When

a firm’s material costs can increase profit margins significantly, in this situation,

efficient purchasing and purchasing management again can make or break a business.

Perhaps the most important of the four factors is the amount of control purchasing and

supply personnel actually have over material availability, quality, costs and services.


PAYMENT AGAINST PURCHASE

There are various modes of payment-

1. Advance payment to suppliers:

Advance payment shall be made to the suppliers only in such cases where it is

specifically provide in the contract order. The advance payment to contractors shall be

made against submission of bank guarantee in the Performa provided by IFFCO.

Advance payment against indemnity bond shall not be release as provided in the

purchase procedure.

2. Full Payment / 90% To 95% Payment:

In case the terms of payment provide for full payment or part payment against dispatch

document through bank, the suppliers will be negotiating the documents through the

bankers. After the documents are received by the bankers, they are forwarding bank

intimation along with a copy of the purchase order to ascertain that the invoice is

raised for the material ordered and conforms to the other terms and condition of

purchase orders.

After the intimation from the bank is received the received the invoice of the

supplier will be scrutinized by the finance and account department for the following:-

Purchase order number

Whether material supplied are as specified in the purchase

Quantity supplied

Whether excise duty, sale tax and other taxes are as per the order

Where there is delay in supplying the material and the payment through bank is

90% to 95%. It should be ensured that penalty for delay, as provided in the

purchase order, is recovered before releasing the balance payment.


FULL PAYMENT / BALANCE PAYMENT AFTER RECEIPT OF

MATERIALS:

In case the purchase red provides the 100 % payment after receiving of materials and

accepted payment is to be released after the MRR is recessed from the stores

department. In case the purchase order dispatch documents and the balance payment

after receipt of materials, the balance payment may also to be released after the MAR is

received and it is confirmed that the material has been accepted after inspection and

taken on charge. Before released of the payment, the invoices should be scrutinized as

the case of payments released through bank. In addition it should also be verified

whether all the items invoiced have been received, inspected and accepted per the

MRR.

DELAY IN DELIVERY

In case of project purchases, the time and date of the delivery is the contract. In the

event of delay in the execution of the order beyond the date of delivery as stipulated in

the order, the project authorities may take following actions –

Accept delayed delivery at price reduced by a sum equivalent to 0.5 % if the value

goods not delivered for every week of delay or part thereof limited to a maximum of

5% of the contract value.

Cancel the order in part or full and purchase such cancelled materials from elsewhere

on account and at the risk of the suppler without prejudices to his right inspect of goods

delivered.


ROLE OF WAREHOUSING AND DISTRIBUTION IN INVENTORY

MANAGEMENT:

Without warehousing and distribution, stores and restaurants would be empty of both

products and customers. All of us depend on warehousing, distribution, and inventory

management to provide us with what we want, when we want it, at a price we can

afford. Whether your warehouse’s pallet rack holds shampoo or computer parts, you play

a key role in a supply chain that millions of people depend upon to maintain their

standard of living.

This means warehousing and distribution are worth the time and effort of analyzing the

way you manage your inventory. In the chain of events that leads to putting products in

the hands of consumers, your warehouse is responsible for receiving, storing, and

shipping items. Despite the warehouse’s important role in inventory management, to

this day, warehouses are often a misunderstood and underestimated asset. Here are

some key areas where your warehousing and distribution methods affect the

profitability of many other companies:

Help businesses avoid lost sales. Since you keep goods on hand, businesses are

able to sell those goods and avoid losing valuable customers.

Help provide discounts. Bulk inventory often equates to discounts for your

company and consumers alike. The larger the order and the inventory, the

smaller the price is per item.

Keeps production rolling. To manufacture an item, factories need all the pieces

in sufficient quantities. Warehouses keep those pieces on hand for factories,

avoiding the huge expense of halting production.


http://www.aceshelf.com/home.asp

WAREHOUSE MANAGEMENT SYSTEM:

Warehouse management deals with receipt, storage and movement of goods, normally

finished goods, to intermediate storage locations or to final customer. In the multi-

echelon model for distribution, there are levels of warehouses, starting with the Central

Warehouse(s), regional warehouses services by the central warehouses and retail

warehouses at the third level services by the regional warehouses and so on. The

objective of warehousing management is to help in optimal cost of timely order

fulfillment by managing the resources economically.

A warehouse management system, or WMS, is a key part of the Inventory

management and supply chain and primarily aims to control the movement and storage

of materials within a warehouse and process the associated transactions, including

shipping, receiving and picking. The systems also direct and optimize stock put away

based on real-time information about the status of bin utilization.

The objective of a warehouse management system is to provide a set of computerized

procedures to handle the receipt of stock and returns into a warehouse facility, model

and manage the logical representation of the physical storage facilities (e.g. racking

etc), manage the stock within the facility and enable a seamless link to order processing

and logistics management in order to pick, pack and ship product out of the facility.


NEEDS FOR WAREHOUSING:

Warehousing is necessary due the following reasons:

I. Seasonable production: you know that agricultural commodities are harvested

during certain seasons, but their consumption or use takes place throughout the

year. Therefore, there is need for proper storage or warehousing for these

commodities, from where they can be supplied as and when required.

II. Seasonal demand: there are certain goods, which are demanded seasonally,

like woolen garments in winters or umbrella as in the rainy season. The

production of these goods takes places throughout the year to meet the seasonal

demand. So there is a need to store these goods in a warehouse to make them

available at the time of need.

III. Large scale production: in case of manufactured goods, now a days production

takes place to meet the exiting as well as future demand of the products.

Manufacturing also produce goods in huge quality to enjoy the benefited of

large scale production, which is more economical. So the finished products,

which are produced on a large scale, need to be stored properly till they are

clearly by scales.

IV. Quick supply: both industrial as well as agricultural goods are produced at

some specified places but consumed throughout the country. Therefore, it is

essential to stock goods are made available to the consumers at the time of their

need.


V. Continuous production: continuous production of goods in factories requires

adequate supply of raw materials. So there is a need to keep sufficient quantity

of stock of raw material in the warehouse to ensure continuous production.

VI. Price stabilization: to maintain a reasonable level of the price of the goods in

the market there is a need to keep sufficient stock in the warehouses. Scarcity in

supply of goods may increase their price in the markets. Again, excess

production and supply may be also leads to fall in prices of the product. By

maintaining a balance of supply of goods, warehousing leads to price

stabilization.


FUNCTIONS OF WARHOUSES:

WAREHOUSES provide protection to goods against heat, wind storm, moisture etc.

and also cuts down losses due to spoilage, wastage etc. This is the basic functions of

every warehouse. In addition to this, warehouses now a day also perform a variety of

other functions.

Storage of goods

Protection of goods

Risk bearing

Financing

Processing

Grading and branding

Transportation

ADVANTAGES OF WAREHOUSING:


WAREHOUSING offers many advantages to the business community. Whether it is

industry or trade, it provides a number of benefits which are listed below:

Protection and preservation of goods.

Regular flow of goods

Continuity in production

Convenient location-

Easy handling-

Useful for small businessmen

Creation of employment

VENDOR MANAGED INVENTORY

In its simplest form, Vendor Managed Inventory is the process where the vendor

assumes the task of generating purchase orders to replenish a customer’s inventory.

VMI is a term that is used to describe many types of supply chain initiatives.

VMI means of optimizing supply chain performance in the manufacturer is responsible

for maintaining the distributors’ inventory data and is responsible for generating

purchase orders.

VMI is a family of business models in which the buyer of a product provides certain

information to a supplier of that product and the suppliers takes full responsibility for

maintaining an agreed inventory of the material, usually at the buyer’s consumption

location (us ually at the store). A third party logistics provider is involved who makes

sure that the buyers have the required level of inventory by adjusting the demand and

supply gaps.

Under The Typical Business Model: when a distributor needs product, they

place an order against a manufacturer. The distributor is in total control of the


timing and size of the order being placed. The distributor maintains an

inventory plan.

Vendor Managed Inventory Model: The manufacturer receives electronic data

that tells about the distributors sales and stock levels. The manufacturer can

view every item that the distributor carries as well as true point of sales data.

The manufacturer is responsible for creating and maintaining the inventories

plan. Under VMI, the manufacturer generates the order, not the distributor.


Advantages of VMI:-

Higher service degree

Higher responsibility & more liberty of the suppliers when disposing the

supplies.

More economical lot sizes

Small stocks with the dealers

VMI reduces stock outs and reduces inventory in the supply chain. Some features

are:

Shortening of the supply chain.

Centralized forecasting

Frequently communication of inventory, stock out and planned promotions.

No manufacturing promotions

Trucks are fulfilled in a priority order.

VMI implementation challenges :

VMI can be made to work, but the problem is not just one of logistics. VMI

often encounters resistance from the sales force and the distributors. At issue are

roles and skills, trust and power shifts. Some of the sales force concerns are:

Loss of control

Effects on compensation – incentives, bonuses may be depends on how

much is sold, but sales force has less influence under VMI.

Possible loss of jobs

Skepticism that it will function well – technical problems.

Concern that reduced inventory will result in less shelf space and therefore loss of

market share. This concern can be addressing, by filling the self space with other stock

keeping units from the same vendor.


Operational cost of purchase department from 2008-09

Sr. no. Name of the location

Phulpur

1. Wages of officials per annum

03-04 04-05 06-07 07-08 08-09

A Total no. of employees

22 22 22 26 25

B Wages of officials per annum

CM (MAT) 380231 402882 435008 469035 505734Middle level officer

2330502 2463453

2347417 3414768

4739228

Workers level employees

1884399 1979625

1900161 1994622

1725412

2. Value of machines (16.21% dep. Per year)

A PCs 384596 488247 409102 533409 446943B Network printer 213925 209748 175747 275960 231227

3. Misc. expenditureA Stationary 109852 94096 73535 86050 154617B Postal cover - - - - 34306C Fax charges 80639 91059 38889 32289 38697D Telephone charge 34306E Books/periodical/

newspaper4800 4800 4800 4800 4800

Total expenditure of purchase

5388944 5733910 5384659 6810933 7880964

4. Total no. of orders processed per year

1296 1421 1672 1383 1324

Internal Lead Time


Sr.no. Types of order

No. of days Total value of orders (in lacs)

Average lead time in days

1 Up to Rs 15000

242 12.93 69

2 Rs 15000 to 1 lacs

413 193.91 81

3 Rs 1 lacs - Rs 10 lacs

481 1639.74 78

4 Above Rs 10 lacs

160 9504.56 54

OVERALL AVERAGE 70 DAYS


SUPPLIERS EVALUATION CRITERIA SHOULD BE USED

Q: 1 HOW TO EVALUATE SUPPLIERS?

Ans: We can evaluate suppliers on the basis of:-

Prices

Quality

Services

Delivery

Q: 2 How to measure the performance of the suppliers?

Ans: Though the little change in their DFD i.e. “data floe diagram” are:-

Purchasing Management with SAP Business One.

Q: 3 Why to use “SAP BUSINESS ONE”?

Ans: the Material management system which IFFCO using is in house built and it is not

as professional and reliable as SAP BUSINESS ONE, that’s why employees there more

rely on paper work rather than using the software.

SUPPLY BASE REDUCTIONS

Q: Why supply base reduction is necessary in IFFCO?

Ans: IN IFFCO, the numbers of supplier are as follows:

Sr. no. Name of Location Phulpur

1. Total no. of vendors 3161

A. Domestic vendors 2921

B. Foreign vendors 240

Since there are large number of suppliers in IFFCO, so they are not properly managed

and the result is increment in lead time and there is a gap in supply chain. They should

review the performance of suppliers every year and reduce accordingly.

Q: 4 what methods can they use to reduce supply base?

Ans: they can be:-

Twenty/ eighty rule

“Improve or Else” approach


Triage approach

CAN GO FOR ANNUAL RATE CONTRACTS

Q: What is the benefit for annual rate contracts?

Ans: annual Rate Contracts can help in the establishment of mutually beneficial long

term relationships between buyers and suppliers. So, purchasing departments determine

what to buy, where to buy it, how much to pay, and ensure its availability by managing

the contract and maintaining strong relationships with suppliers. It helps:-

In reducing lead time

In reducing inventory levels, no need to block money in inventory.

One time bidding.


COMPARATIVE ANALYSIS OF INVENTORY AVAILABLITY IN IFFCOUREA 2008-09 (LACSMT) 2009-10 (LACS MT)JANUARY 0.25 0.45FEBURARY 0.25 0.38MARCH 0.24 0.35APRIL 0.25 0.39MAY 0.26 0.37JUNE 0.26 0.41JULY 0.25 0.42AUGUST 0.26 0.39SEPTEMBER 0.20 0.40OCTOBER 0.23 0.39NOVEMBER 0.24 0.43DECEMBER 0.28 0.44

ANALYSIS:- According to this analysis, IFFCO has increased its production and sales

capacity. Though they have enough closing stock of materials in their warehouses as compare to 2008-09.

The sales of the urea is very much high in September and October month, though they have enough material in hand to supply.


ANALYSIS:- This analysis shows that the inventory in the hand of IFFCO was very much

constant in volume.

In the month of December, company was having 10% of the total product as a

stock; this shows the decrease in the sales of the urea in the market.


NPK/DAP 2008-09 2009-10JANUARY 0.95 0.55FEBURARY 0.91 0.58MARCH 0.92 0.57APRIL 0.88 0.56MAY 0.82 0.57JUNE 0.93 0.56JULY 0.87 0.57AUGUST 0.95 0.56SEPTEMBER 0.83 0.50OCTOBER 0.90 0.45NOVEMBER 0.91 0.56DECEMBER 0.94 0.50CLOSING STOCK (MONTHLY)

ANALYSIS:- This analysis shows that the production of nap/dap is much higher than 2009-

10.

There is a stable control over storage of finished unsold product.


ANALYSIS:- In the month of September and October , the sale of the NPK/DAP was on peak.

So the demand of the product goes high and the volume of available resource had goes down.

Only 7% of the NPK was retained with the hand of company.


SWOT ANALYSIS

STRENGTH:

Largest producer of fertilizers in the country.

Five strategically located plants with cutting edge production technologies.

Most plants achieve capacity utilization in excess of 100%.

A large number of co-operative societies are associated with IFFCO (38,155 at

present).

Vast marketing and distribution network due to the high number of co-operative

associates with IFFCO.

Their service network and feedback network is also pervasive in INDIAN

RURAL AREAS.

Highly diverse and strategic portfolio of external investments.

No external trade union exercises any power within IFFCO.

WEAKNESS:

IFFCO has a bureaucratic organizational structure and therefore, is obsessed

with working within set a framework defined by rigid rules and regulations.

This is often discourages innovation and may also cause sub unit conflicts, in

some cases, blind adherence to rules and regulations may limit the perspective

of a manager and result in functional unit goals overriding organizational goals.

The organizational setup is very rigid and not very efficient in handling sudden

changes in business environment.

There is excessive sub divisions in some departments and this results in

inefficiency.


OPPURTUNITES:

IFFCO has embarked upon a growth plan titled “vision 2010”to achieve annual

turnover of Rs. 15000 crores (USD 3400 million) by the year 2010.

Installation of Ammonia/Urea plants and also acquisition of fertilizer units.

Generation of power.

Production and marketing of micro nutrients, seeds, bio fertilizers, pesticide etc.

Value addition to Agri-Products and Marketing.

Banking and Financial Services.

Information Technology and IT enable Services.

Establishments of Retail Chain in Urban and Semi- Urban locations.

THREATS:

Competition from KRIBHCO i.e. Krishak Bharti co-operative another

government under taking which also produce fertilizer and is very similar to

IFFCO in nature.

Aggressive competition from private companies which are now entering the

fertilizer sector.

The government of India has a major influence on the functioning of IFFCO. It

is the government which decides “what to produce?”, “how much to produce?”

and “where to sell?”. This factor often becomes IFFCO’s major weakness as it

sometimes has to functions undue political pressure and takes steps which are

non- profitable.

Government policies on import of fertilizers from foreign nations and decrease

in subsidies.


SUGGESTIONS:

The organization should establish a national level committee which can

familiarize the government with the ground realities in the Fertilizer sector

and also advise the government in formation of Policies regarding

distribution of fertilizers, import of fertilizers and subsidies.

There should an Entrepreneurship Development Cell at all plants which

should encourage innovation amongst employees. This would infuse some

of the positives of an organic design in to the organizational environment.

This cell should lay new business ideas and innovations in front of the top

levels of management.

Unnecessary sub-divisions in departments should be eliminated to promote

efficiency. In the Personnel & Administration department one sub-division

can handle both Legal Matters and Contract Laws.

The Inspections & Plant Health Department can be dissolved. The

Maintenance Department can have an additional sub-division for

Inspections & Plant Health. This will streamline the organizational structure

and also increase the efficiency of overall maintenance.

The Co-operation should not be rigid in its approach and should be ready to

face sudden variations in business environments. Managers should not limit

themselves to following regulations blindly but should proactively analyze

situations.


Inventory management is one of the important key activities of business logistics.

Because of its role in business organizations, inventory is one of the most important

instruments of logistics planning and control. Inventory on work in process is linked to

the production process, physical inventory on stock or in buffer storage is unnecessary

from the standpoint of added value and is considered as waste of time and money.

It might seem axiomatic that inventory control is efficient as long as inventory level is

going down. But the fact is that, if inventories are minimized without adequate

operations, inventories have been mismanaged rather than controlled efficiently. Thus,

the basic objectives of inventory management appear to be conflicting in nature.

Inventories should increase or decrease in amount or time as related to sales

requirements and production schedules.

IFFCO is in the business of fertilizer manufacturing and in this sector a huge

investment in plant and machinery is required.

Therefore IFFCO should efficiently use various inventory management tools to control

the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ, Min-

Level, Max-Level system of verification of inventory etc.


BIBLIOGRAPHY

Books:-

Management Accounting Dr. S.P.Gupta

Financial Accounting Khan And Jain

References:-

Marketing Philip Kotler

News Paper The Economic

Times

Magazine Business Today

Annual Report Of IFFCO 2009-10

Marketing News Of IFFCO (Weekly)

Website : www.iffco.nic.in


http://www.iffco.nic.in/

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