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LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Report on Summer Training

INVENTORY MANAGEMENT

OF IFFCO

AT

IFFCO AONLA UNIT

Submitted to Lovely Professional University

In partial fulfillment of the

Requirements for the award of Degree of

Master of Business Administration

Submitted by:

Nipun Bhardwaj

RT1903B38

REGD. No. 10906203

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

Page No.1
PHAGWARA

PREFACE

Summer Training constitutes an important part a good practice oriented management course. According to
the syllabus of MBA, every student has to undergo 6-8 weeks summer training for exposure in any
commercial industry or organization. So for the partial fulfillment of this requirement, I underwent my
training at IFFCO AONLA , BAREILLY.

Training is necessary to understand that how theoretical concepts are applicable practically. During my short
stay in the organization, I was introduced to entire company. I visited many departments- Human Resources,
Accounts, Administration, Regulatory and Safety, main plant, etc.

Page No.2
ACKNOWLEDGEMENT

Expression of sincere gratitude is just a partial acknowledgment. The accomplishment of this project would
have not been possible individually without the encouragement, assistance & valuable support from various
sources. My vocabulary falls short of word to express my sincere gratitude to Mr. Deepak Yaday(account
officer) under whose guidance I had opportunity to carry out the present work.

I am very thankful to Mr. K.K. Pandey (Sr. Training officer) & Mr. D. Kalia (Manager training) who
support me & helped me throughout the project. I am also thankful to Mr. Lovy Agarwal who helped me
throughout the project with his been supervision & guidance.

I am thankful to F & A staff and to all the employee of IFFCO who cooperated with me during my training
period.

Last but not the least , I would like to express my gratitude to Mr. A.U.Ahmed (Assisitant Manager) and
Mr. Sandeep Ghambhir(depty. Manager) for their help and guidance.

I owe a deep sense of gratitude to all the respondents who gave me valuable information for the project.

Nipun Bhardwaj

MBA (F&C)

LPU

Phagwara

Page No.3
LIST OF CONTENTS

1) Introduction to topic

1) Need of the study

2) Objective of the study

3) Literature review

4) Research Methodology

5) Introduction about IFFCO

6) Objective of the company & its aim

7) Finance and account department

8) Inventory management

9) Material department

10) Purchase section

11) Payment against purchase

12) Delay in delivery

13) Material coding

14) Packing

15) Inspection of material

16) Accounting of raw material

17) Inventory control

18) Techniques of Inventory control

19) Analysis

20) Findings

21) Conclusion

22) Recommendation

23) Reference.

INTRODUCTION TO THE TOPIC


Page No.4
INVENTORY MANAGEMENT

"Managing the level of inventory is like maintaining the level of water in a bath tub with an open drain. The
water is flowing out continuously. If water is let in too slowly, the tub is soon empty. If the water is let in too
fast, the tub overflows."
The dictionary meaning of inventory is 'stock of goods'. The investment in inventory is very high in
most of the undertakings engaged in manufacturing. The amount of investment is sometimes more in
inventory than in other assets. About 90 percent part of working capital is invested in inventories. It is
necessary for every management to give proper attention to inventory management. A proper planning of
purchasing, handling, storing and accounting should form a part of inventory management. By proper
planning it is possible for a company to reduce its levels of inventories to a considerable degree, without any
adverse effect on production and sales, by using simply inventory planning and control technique. The
reduction in excessive inventories carries a favorable impact on company's profitability.
An efficient system of inventory management will determine.
1) What to purchase

2) How much to purchase

3) From where to purchase


4) Where to store, etc.
"Effective inventory management enables an organization to meet or exceed customers' expectations
of product availability while maximizing net profits or minimizing co.

Inventories constitute about 60% of current assets of companies of India. The manufacturing companies hold
inventories in the form of raw materials, work in process, finished goods, stores and spares, chemicals,
lubricants etc.

Three motives for holding inventories:-

 To facilitate smooth production and sales operation (transaction motive),

 To guard against the risk of unpredictable changes in usage rate and delivery time (precautionary
motive)

 To take advantage of price fluctuation (speculative motive)

Page No.5
 Inventories represent investment of a firm’s funds. The objective of the inventory
management should be the maximization of the value of the firm. The firm should therefore
consider costs, return, risk factors in establishing its inventory policy.

 Two types of cost are involved in the inventory maintenance:-

o “Ordering cost” requisition, placing of order, transportation, receiving, inspecting,


storing, clerical staff, are fixed per order. Therefore, they decline as the order size
increases.

o “Carrying cost” warehousing, handling, clerical staff, insurances and taxes. Carrying
costs vary with inventory holding. As order size increases, average inventory holding
increases and therefore the carrying costs increase.

 The firm should minimize the total cost (ordering+carrying). The economic order quantity of
inventory level occur at point where total cost is minimum

EOQ = √2AS/C, where A= annual requirement, S = ordering cost per unit, C = carrying cost per unit per
annum

Page No.6
NEED OF THE STUDY

1) How to make the inventory system more efficient and effective?

2) By which way the cost can be minimized that is invested in the inventory and how to regulate the
whole inventory system in a better way.

3) How IFFCO can ensure the interrupted supply without making over investment in the
inventories. As we know that IFFCO has large machineries due to which it has to retain too much
stock of spares to avoid the interruption?

4) As we know that IFFCO is a very big organization and it is typical to coordinate with all the
employees who are working there. But for the effective inventory system there should be
coordination between the store, purchase department and finance department. So what should be
done for the coordination between the departments to make the inventory system effective?

5) To analyze the working of various departments that work in coordination with Finance
department as payroll section, bill section, taxation section etc.

Page No.7
OBJECTIVE OF STUDY

"The main aim of study is to check the efficiency and effectiveness of inventory management
system."
Investment in inventory incurs a high cost. Therefore effective management is necessary to minimize
the cost and ultimately increases profitability of an organization.
A part from our main objective our main objectives are:
1) To analyze the level of inventory management by IFFCO.
2) To analyze the investment in inventory management.
3) To give suggestion if any, regarding effective inventory management.

Or

To give suggestions to ensures smooth and uninterrupted supply without making unnecessary investment of
funds in inventory.

Page No.8
Literature Review

1) IFFCO INVEVTORY

By K. Sharma(2008)

During the year 2008-09 IFFCO produced 71.68 lakh(7.168 million) tonnes of fertiliser material; registering
overall capacity utilisation of 98 percent for nitrogenous and 53 per cent for phosphatic fertiliser. It
contributes 21.4% of country’s total nitrogenous fertiliser production and 27% of total phosphatic fertiliser
production in the same period. Plant productivity during the year stood at 1373 tonnes/person.

The Society has also achieved another important landmark in the field of energy conservation by clocking
overall annual energy of 5.943 Gcal/tonne of urea.

The Society has cloaked an all time high sales of 112.58 lakh tonne of fertilizers during 2008-09

2) Optimizing Safety Stock

By Dave Piasecki (2009)

Optimizing Safety Stock levels by calculating the magical balance of minimal inventory while meeting
variable customer demand is sometimes described as the Holy Grail of inventory management (ok,
forecasting is probably the true holy grail but I thought this sounded good). Many companies look at their
own demand fluctuations and assume that there is not enough consistency to predict future variability. They
then fall back on the trial and error best guess weeks supply method or the over simplified 1/2 lead time
usage method to manage their safety stock. Unfortunately, these methods prove to be less than effective in
determining optimal inventory levels for many operations. If your goal is to reduce inventory levels while
maintaining or increasing service levels you will need to investigate more complex calculations.
One of the most widely accepted methods of calculating safety stock uses the statistical model of Standard
Deviations of a Normal Distribution of numbers to determine probability. This statistical tool has proven to
be very effective in determining optimal safety stock levels in a variety of environments. The basis for this
calculation is standardized, however, its successful implementation generally requires customization of the
formula and inputs to meet the specific characteristics of your operation. Understanding the statistical
theory behind the formula is necessary in correctly adapting it to meet your needs. Errors in implementation
are usually the result of not factoring in variables which are not part of original statistical model

3) Do Inventory Management Systems Really Work?

J.S Johar (2009)

Essentially, the systems work like this. First, bar codes or RFIDs tell scanners which items consumers are
buying. The scanners transmit the information to computers by reading the bar codes and sending that
information to the software. The software then interprets the numbers from the bar code and matches those
Page No.9
numbers to the type of merchandise they represent. This allows the merchant to track sales and inventory --
either at the checkout counter or with a hand-held scanner -- keeping the store abreast of which items are
selling.

Specialized software keeps track of how much stock is going out the door via purchases and how much
remains on shelves and in the warehouse, giving managers a real-time picture of what's happening. The
software also analyzes the data and makes recommendations for re-ordering strategies. Sometimes, they're
programmed to automatically order at a certain point. It's important to note, however, that good systems
leave room for human decision-making. The systems provide good information to support decisions but
leave the final call up to managers.

Once managers make a re-order decision, the system uses electronic data interchange to communicate its
needs for additional merchandise to a vendor. Electronic data interchange is the process of sending and
receiving data between two parties -- a retailer and a vendor, for example -- using data transmission lines,
such as the Internet. The data is stored in a computer's memory bank and read by managers at both ends of
the line.
While inventory management systems offer retailers and vendors many advantages, there are some pitfalls.
Because the system aims to keep a bare minimum of stock in store, retailers can be caught short if an item
unexpectedly becomes a big seller. Retailers traditionally kept additional stock on hand -- known as buffer
or safety stock -- to prevent that occurrence, but many have discontinued the practice. And, as with all
technology, these types of systems are subject to the effects of a widespread computer crash or software
failure

4) Enhance Inventory System Functionality Through Custom Reporting.

By Dave Piasecki (2007)

There are several truths that apply to business software packages regardless of whether you are using a $500
small business inventory tracking package or a multi-million dollar enterprise package.

They don’t do everything you thought they would do.


The standard reports available are less than optimal for your business needs.

These truths do vary somewhat between the low-end and high-end systems in that the low-end systems are
generally less buggy due to a much lower level of complexity and the high-end systems will certainly offer
more functionality and more standard reporting. What is also true is that few companies take full advantage
of the data available because they remain constrained by the standard reports or by the misconception that

Page No.10
custom reporting falls under the responsibility of the IS department and requires a programmer or the
software manufacturer to implement.

Executives and managers at larger companies have long known the value of having programmers create
custom reports where data is accumulated, manipulated and summarized giving them the information to
make the decisions necessary to remain competitive. However, this level of information utilization is rarely
achieved at mid and lower levels of an organization and is a complete mystery to smaller businesses. The
primary reasons for this are that end-users are unaware of the reporting tools available and/or are unaware
that it does not take a programmer to use these tools. There is also the misconception that custom reporting
is a tool used for high level analysis and does not apply to day to day operations.

5) Team CIO
Added on Jun 02, 2010

As the world's largest producer and distributor of fertilizer, IFFCO is responsible to over 40,000 co-
operative societies located all over the country. It's a complex operation: just its marketing division is
divided into five zones, 20 state offices, 68 area offices and 455 field locations and 177 retail outlets.

Fertilizer is sent from plants and ports via rail and road and then stored in about 5,000 warehouses. Just the
number of trucks used to move material from rake points to warehouses? 6,90,000. Its widespread operations
and multiple variables created major challenges.

Because a majority of IFFCO's data sources were in rural India, information moved through the system
slowly, which resulted in delayed decisions. Another challenge was entering data of what was produced and
dispatched from every plant, every day. The cooperative also needed to monitor inventory at each of its
warehouses. "The release of government subsidies in thousands of crores is linked to this data," says S.C.
Mittal, senior executive director management services and IT, IFFCO. "Many ERP systems were evaluated
but none of them met our requirements."

As he pushed the project through its final phases, Mittal met with multiple challenges, one of them being
educating users. "The field-force is not computer literate," he says. "And since field officers are located in
remote locations providing them with support was also a major challenge." Training programs and
identifying computer-savvy area account officers who were trained in resolving hardware and software-
related issues went a long way in breaking these challenges.

Today, the Rs 15-crore project has enabled faster decision-making, which allows salespeople to generate
more revenue. From 2006 to 2008, IFFCO's turnover tripled but it added on only 18 marketing people.
VIKAS has also created greater visibility. "The lead time for depositing remittances reduced from seven to

Page No.11
three days resulting in huge interest savings," says Mittal. "This initiative simplifies the ever-increasing
complexities of IFFCO's business processes due to its geographical spread

6) IFFCO plans to increase…….

By R.K. Mehta(2008)

HMEDABAD: Indian Farmers Fertilizers Co-operative Ltd (Iffco) plans to invest Rs 1,000 crore to
set up a 4.5 lakh tonnes per annum plant at Kandla for manufacturing phosphoric acid as a backward
integration project.
Iffco is also planning to add around 8 lakh tpa capacity to its existing 37 lakh tpa of urea capacity at
an investment of about Rs 1200 crore.
“The Kandla plant, which manufactures DAP and NPK fertilisers is currently dependent on imports
for its main raw material, phosphoric acid. Due to the wild fluctuations in global prices, Iffco is
proposing to go in for backward integration,” said D K Bhatt, marketing director of Iffco. Revenues
from the Kandla plants are currently about Rs 2,500 crore.
Iffco is finalising plans to increase its urea and ammonia production facilities too. “From August 19,
Iffco temporarily stopped its urea production at Kalol plant so as to use the ammonia produced at
Kalol for its DAP and NPK products at its Kandla plants.

Global ammonia prices were recently hiked to $ 240 per tonne from $ 170 by a global cartel. This
step taken by Iffco is to pressurise global producers to bring down the ammonia prices,” said Bhatt.
To reduce its dependence on imported ammonia Iffco is now planning to increase its existing
ammonia capacities.

Bhatt said that Iffco has also submitted its bid to the Gujarat government, showing its interest to take
a stake in the 500 MW power plant project to be set up at Chhattisgarh

7) Guide to Inventory Accuracy

By Dave Piasecki(2009)

Having problems with inventory accuracy? Implementing technologies such as bar coding systems, RFID,
and pick-to-light are often assumed to be the solutions to inaccurate inventories. If properly implemented
these technologies can help reduce errors, however, none of them will eliminate all errors, and a poorly

Page No.12
implemented system can leave you worse off than you were before. Whether you are planning on
implementing additional systems or not you should consider taking care of the basics first.

The Basics

Attitude
Process Definition
Procedure Documentation
Employee Training
Employee Testing
Monitoring Processes for Compliance
Setting Standards
Tracking Accuracy
Accountability
Count, Count, Count
Reevaluate
There is nothing revolutionary about my list of "The Basics", it's simply a series of steps which define a
process for achieving higher levels of inventory accuracy. Your success or failure will be determined by
your implementation of these steps. This is not something that should be rushed; throwing a quick fix
approach together to alleviate an immediate need may be more damaging in the long run since the success of
this plan requires a cooperative effort by many people within your organization. If your first attempt fails,
you will find it more difficult to get a high level of cooperation for your next try. Take the time and do it
right.

8) Process Scheduling
Automate, integrate batch processes
across the enterprise with BMC
www.BMC.com(2008)

The purpose of this research was to provide recommendations to personnel at IFFCO, in examining the
applicability of a Just- in-Time (JIT) inventory management system. JIT is a philosophy that can be applied
to inventory management operations to reduce waste, achieve cost savings, maximize space, and improve
quality of care. In the healthcare environment, a prime vendor program is essential to a successful JIT
program. With the advent of a prime vendor program at IFFCO, Oakland, the advantages offered by JIT

Page No.13
become available. With diminishing budgets, material managers must adopt innovative practices that reduce
resource requirements, while providing high quality care. JIT is an innovative approach to inventory
management that has been successfully applied in the healthcare industry. The authors examine JIT and how
this philosophy can further the goals of the prime vendor program and increase quality of care.

RESEARCH METHODOLOGY.

Research covers the search for retrieval of information for a specific purpose. Basically research is the
objective and systematic method of finding solution to a problem. The steps followed to conduct this study
are as follows:-

(1) Formulating research problem – The problem under study viz. how effective are the measures applied by
Iffco, Aonla to control the inventory is basically studied through analytical research. Material is important
for the efficiency of the system. It is a matter of great importance for inventory department. Inventory
department of IFFCO, Aonla is responsible for efficient inventory control. Thus the whole study is
conducted under the guidance of officers of this department.

(2) Extensive literature survey – Many published studies, books or material on effective control of inventory
were referred to for getting a true direction to research process.

(3) Data collection – The study is conducted through collection of data through surveys, interviews with
officials etc. Personal interviews were conducted where a set of pre- conceived questions were asked from the
officers of inventory department regarding material control policies adopted by them. Books of accounts of
Aonla –I and Aonla – II are studied thoroughly to details about inventory stock, cost of material consumed,
increase and decrease in stock in the last few years etc.

Page No.14
Sample of material was obtained randomly. ABC analysis was used where sample of material was graded
under three categories: A, B, C.

(4) Analysis and interpretation – The data about inventory is analysed to find out the effectiveness and
efficiency of inventory policy. As regards the financial performance, the data about different financial
indicators is analysed to calculate the different ratios and to draw the graphs.

This section deals with the methodology used in my study. It describes the nature of study, data collecting
method, accounting procedure of inventories, valuation and verification of inventories etc. The data used in
study was manually collected from the employees of IFFCO as well as from the net. Data were collected
through the inventory software, databases, net and by asking questions to the employees. There is no manual
coding. I have also included some financial data with the help of annual report.

We were placed in different departments that are related to the inventory .

We were told how the documentation in different departments like srv, po ,isrv , bills etc. are done .For
collecting data we have asked questions to the different department heads

SOURCES OF DATA
There were various sources for collecting the data. But I have collected data from some of the resources that
are as following-
1) Through asking the questions from the employees
2) InterNet
3) Annual report of IFFCO
4) Accounting manual of IFFCO
5) From the stores
6) By the inventory software that is used in IFFCO

Page No.15
INTRODUCTION ABOUT IFFCO

During mid- sixties the co-operative sector in India was responsible for distribution of 70 percent of
fertilisers consumed in the country. This Sector had adequate infrastructure to distribute fertilisers but had no
production facilities of its own and hence dependent on public/private Sectors for supplies. To overcome this
lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to
Page No.16
specifically cater to the requirements of farmers. It was a unique venture in which the farmers of the country
through their own co-operative societies created this new institution to safeguard their interests. The
numbers of co-operative societies associated with IFFCO have risen from 57 in 1967 to 38, 155 at present.
Indian Farmers Fertiliser Co-operative Limited (IFFCO) was registered on November 3, 1967
as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative Societies act 1984 &
2002, the Society is deemed to be registered as a Multistate Cooperative Society. The Society is primarily
engaged in production and distribution of fertilisers. The byelaws of the Society provide a broad frame work
for the activities of IFFCO as a Cooperative Society.

IFFCO had set up the KALOL plant for manufacture of Nitrogenous Fertiliser and KANDLA plant for
manufacture of Phosphoric fertiliser. These plants commenced commercial production in the year 1974-75.

IFFCO had emerged as Asia's largest Fertiliser Cooperative with its four modern sophisticated plants at
KALOL and KANDLA in GUJRAT and PHULPUR and AONLA in UTTAR PRADESH. IFFCO is
country's largest producer of nitrogenous and complex fertiliser with the total production capacity of 2.6
million tones.

Page No.17
IFFCO IS:

1. Largest producer of fertilisers in the country


2. Number of Plant Locations : Five
3. Installed Annual Capacity ('000 MT)
1. UREA - 4242.2
2. NPK/DAP - 4335.4
3. TOTAL 'N' - 2628.2
4. TOTAL 'P2O5 - 1712.8

1. Only Fertiliser Institution in the country to produce 68.47 lakh MT of fertilisers and 93.24 lakh MT
of sales during 2007-08.

2. Contributed about 20% to the total 'N' and 25% to the total "P2O5" produced in the country
during the year 2007-08.

3. Fertilisers marketed through 39,564 Cooperative Societies and 15 Farmers Service Centers.

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

Page No.18
BOARD OF DIRECTORS

The Directors of IFFCO


Chairperson  Shri Surinder Kumar Jakhar

Vice-Chairperson  Shri N.P. Patel

Directors
Shri Chandra Prakash
Shri Halappa Basappa Achar
Shri Kartick Chandra Sarkar
Shri Harminder Singh Jassi
Shri M.Gopal Reddy
Shri Ankushrao R.Tope

Managing Director  Dr. U.S.Awasthi


Dy. Managing Director-cum-Marketing Director  Shri Arabindo Roy
Jt. Managing Director  Shri Rakesh Kapur
Director (Technical)  Shri K.L. Singh

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


Director (HRD)  Shri R.P. Singh

Page No.19
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 fertilizer application.
7) Strengthening cooperation 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.

Page No.20
MISSION

IFFCO's mission is "to enable Indian farmers to prosper through timely supply of reliable,
high quality agricultural inputs and services in an environmentally sustainable manner and to undertake
other activities to improve their welfare"

• To provide to farmers high quality fertilisers in right time and in adequate quantities with an
objective to increase crop productivity.

• To make plants energy efficient and continually review various schemes to conserve energy.

• Commitment to health, safety, environment and forestry development to enrich the quality of
community life.

Commitment to social responsibilities for a strong social fabric

Page No.21
Performance Highlights for the Year 2009-10

81.98 Lakh MT

Highest Production of Fertilisers (Previous Best 71.68 Lakh MT in 2008-09)

43.24 Lakh MT

Highest Production of Urea (Previous Best 40.68 Lakh MT in 2008-09)

38.74 Lakh MT

Production of NPK/DAP/NP (Previous Best 32.26 Lakh MT in 2006-07)

118.27 Lakh MT

Highest Sale of Fertilisers (Previous Best 112.58 Lakh MT in 2008-09)

63.35 Lakh MT

Highest Sale of Urea (Previous Best 58.69 Lakh MT in 2008-09)

54.92 Lakh MT

Highest Sale of NPK/DAP/NP (Previous Best 53.89 Lakh MT in 2008-09)

Rs. 567.28 Crore

Profit Before Tax (Best PBT Rs. 807.09 Crore in 2002-03)

Rs. 401.10 Crore


Page No.22
Profit After Tax (Best PAT Rs. 557.2 Crore in 2002-03)

Rs. 16,809 Crore

Total Turnover (Previous Best Rs. 32,933 Crore in 2008-09)

1,608 MT per employee

Plant Productivity (Previous Best 1,669 MT in 2005-06)

7,885 MT per employee

Highest Marketing Productivity (Previous Best 7,397 MT in 2008-09)

Page No.23
BALANCE SHEET AND PROFI AND LOSS ACCOUNT OF IFFCO

Page No.24
10 YEAR’S PERFORMANCE HIGHLIGHTS OF IFFCO

Page No.25
PRODUCTION IN IFFCO ( in Lakh MT)
Page No.26
SALES IN IFFCO (in Lakh MT)

Page No.27
FINANCE AND ACOUNTS DEPARTMENT
Page No.28
Each company is carried with a purpose of earning money. Money or capital being a scare as well as crucial
resource in the working of any organization needs to be given prime importance. The financial resources
have been planned and controlled in a proper and continuous manner. As among the most crucial decisions
of a firm are those which relate to finance. Finance & accounts from an integral part of any organization.
Proper and smooth functioning of this section is very vital for the organization to survive and grow.

Finance functions are of two types:

 Managerial finance function

 Routine finance function

Managerial finance functions are so called because they require skilful planning, control and execution of
financial activities.

Routine finance functions on the other hand, do not require a great managerial ability to carry them out.
They are chiefly and are incidental to the effective handling of the material finance functions.

The various areas covering under the preview of subsections are as follows

INVENTORY MANAGEMENT

Dictionary meaning of inventory is "detailed list of movable articles". The literary meaning of inventory is
stock of goods. According to International Accounting Standards-2, inventory is a tangible property which is
held:

 For sale in the ordinary course of business;

 In the process of manufacture for such a sale;

 For consumption in the process of production of goods and services for sale including
maintenance supplies and consumables other than machinery spares.

Inventory Management involves the control of assets being produced for the purpose of sale in the
normal course of the company's operations. The goal of effective inventory management is to minimize
the total costs – direct and indirect - that are associated with holding inventories. However, the
importance of inventory management to the company depends upon the extent of investment in
inventory.
The term 'inventory' includes:

Page No.29
1. Inventory of Raw Materials:-

In the case of manufacturing concerns, various types of raw materials are being used in the production
system. To ensure smooth production function and also to avoid any kind of production delays the concern
has to keep inventory of raw materials.

2. Inventory of Stores and Spare Parts :-


This inventory consists of those products which serve as accessories to the main products
manufactured for the purpose of sale. Bolts, nuts screws, clamps, etc., are the examples of stores and spares
parts. Such spare parts are either bought from outside or manufactured in the concern itself.

3. Inventory of Work-In-Process (W.I.P.) :-


Sometimes the manufacturing system involves various processes for converting raw materials
into finished goods. As such, some materials might have been issued to the production process but might not
have been completed as finished goods. This is known as work-in-process.

4. Inventory of Finished Goods :-


All goods manufactured during a particular period may not be sold immediately. These are to
be kept in warehouse. The idea is to uncouple the production and sales function so that it is no longer
necessary to produce the goods before a sale can occur.

The application of managerial function on the basis of management principles in the field of
inventory is termed as inventory management. Managerial functions are performed with respect to
inventory; it may be called inventory management.

The objective of inventory management is to plan the optimum size of inventory which is neither excessive
nor deficient and is timely available. For timely availability along with optimum size, there is need for
controlling as well. Only on the basis of various control techniques one can ensures whether inventory
would be timely available. But effective control in itself depends upon organizing and coordination. Thus,
inventory management comprises the functions of planning, controlling and organizing the types of all
goods, quantity, status, flow and time- sequence etc.

Need for inventory management


Page No.30
Inventory management is an integral part of general management. Three important functional aspects of a
business are closely related to inventory management. These are:
1) Production management
2) Marketing management
3) Financial management
Here the production management and marketing management are related to the physical aspect of
inventory management and; financial management is concerned with the financial aspect of the inventory
management.
In production management, production manager will always strive to have a large inventory of raw
materials and of such a good quality as to ensure stable production operations.
In marketing management, marketing manager aims at satisfying ever increasing demands for
improved customers' service by having large inventory of inside goods.
In financial management, finance manager will effort towards to keep investments in different types
of inventory at a minimum possible level so that the business concern may earn maximum return.

MATERIAL DEPARTMENT

Material Department is responsible for the proper handling of inputs and controlling of material inputs.
Proper handling of input materials ensures the smooth running of plant. Material department recognizes the
need of the input materials and arranges them for the plant. It includes the procurement, verification and
controls of materials in right quantity and at right time to facilities the production function. Material
management includes two important functions:

 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

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4) Last purchase order reference
5) Reorder level

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
Indenter is that person which raises the indent.

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PURCHASE PROCESS
The purchase process can be expressed as following:

INDENTER

Material Purchase Requirement (MPR)

Single stage Enquiry

Two stage Enquiry

E- Procurement Manual
(15 days) (21 days)

Opening

Quotation Comparative Statement (QCS)

Technically Acceptable L-1 Bidder

Order

(With approval of competent authority)

PAYMANT AGAINST PURCHASE

There are various modes of payment through which payment is done:

1- Advance payment to supplier:-

If both the parties are agreed upon advance payment that is specifically provided in the contract order, only
then advance payment is given. The advance payment to contractors shall be made against submission of

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bank guarantee in the Performa provided by IFFCO. Advance payment against indemnity bond shall not be
released as provided in the purchase procedure.

2- Full payment / 90% to 95% payment:-


In case the terms of payment provide for full payment or part payment against dispatch documents
through bank, the supplier will be negotiating the documents through the bankers. After the documents are
received by the bankers, they are forwarding bank intimation along with a copy of the purchase order to
ascertain that the invoice is raised for the material ordered and conforms to the other terms and conditions of
purchase order.
After the intimation from the bank is received the invoice of the suppliers will be scrutinized by the
finance and account department for the following-
1. Purchase order number
2. Whether materials supplied are as specified in the purchase
3. Whether materials supplied are as specified in the purchase order.
4. Quantity supplied.
5. Price basis whether F.O.R. or Ex-works
6. Whether excise duty, sale tax and other taxes are as per the order.
7. Whether bank charges are claimed as per the purchase order.
8. Other terms and conditions of the purchase order.

Where there is delay in supplying the material and the payment through bank is 90% to 95%. It should be
ensured that penalty for delay, as provided in the purchase order, is recovered before releasing the balance
payment. Where payment required to be made, a clarification is to be sought from materials department and
proper approval taken for waiving of penalty or otherwise before retiring documents.
The payments under the contracts must be regulated as per the expressed terms and conditions. Any
payment not covered by the contractual terms and conditions should not be released.

3- Full payment / Balance payment after receipt of materials:-


In case the purchase order provides the 100% payment after receiving of materials and accepted
payment is to be released after the MRR is received from the stores department. In case the purchase order
dispatch documents and the balance payment after receipt of materials, the balance payment may also to be
released after the MRR is received and it is confirmed that the material has been accepted after inspection
and taken on charge.
Before released of the payment, the invoices should be scrutinized as the case of payments released
through bank. In addition it should also be verified whether all the items invoiced have been received,
inspected and accepted per the MRR.
4- Delay In Delivery
In any contract, the time and date of the delivery is the essence of the contract. In the event of delay in the
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execution of the order beyond the date of delivery as stipulated in the order, the project authorities may take
following actions -
1. Accept delayed delivery at price reduced by a sum equivalent to 0.5 %
if the value goods not delivered for every week of delay or part thereof
limited to a maximum of 5% of the contract value.
IMPORTED MATERIAL
Materials procured may be either indigenous or imported. For major projects the foreign contracts
are normally finalized at head office level and payment against these contracts are made by the concerned
unit. Where the order has been placed by the unit directly, they will make the payment to the foreign party
by debiting to the appropriate advance account. If the payments are made through L/C against documents,
the same shall be debited to advances to foreign suppliers account. On receipt of material at site, project
engineer shall prepared the MRR and sent same to project accounts for clearing the supplier's advance
account for material.
Clearing and handling of imported material is the responsibility of material department on the arrival
of ship the materials will be cleared with reference to the invoices and bills. For any short landing or
breakage between the port of dispatch and port of destination, claim action shall be taken by them.

MATERIAL CODING

It is very typical for the every organization to maintain the stock items in case of large number of items. It
will be very typical to identify them at the time of requirement. So the items are coded to avoid confusion.
For the coding of materials the account person assigns code for every item of store. Thus every item has a
code that is called its material code.
Material coding facilitates the account persons and store manager to maintain the transactions of the
items whether of receiving or of issuing. Every item maintained by its code in the stock as well as in the
store accounting section. The item/material code remains same in stores and accounting section.
Whenever a transaction is done in store for the inventories the full details of that transaction is send to store
accounting section also, because the computers of stores and accounting section are connected through Local
Area Network. (LAN)
In this way it is very comfortable task to maintain the inventories on the inventory software with the
help of material coding.

Advantages of codification
1. Lengthy descriptions are replaced by a simple code.
2. It economizes space in forms and reduces clerical work.
3. Ease in identification of stores.

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4. It is comprehensive.
5. It facilitates, mechanized accounting.

6. Secrecy of description can be maintained.


7. It ensures clarity.
CODING
There are different types of coding that are as follows:
a) Numeric: Each item is given a number.
b) Alphabetic: Each item is denoted by a combination of alphabets. If the alphabet selected indicates the
inventory sound when it is pronounced, it is known as mnemonic system. This helps in remembering the
codes.
c) Alphanumeric: It is a combination of alphabets and numeric code.
d) Decimal System: It is basically a numeric system; sub-group may be
indicated by decimals.
In IFFCO 12 digits coding is done.
The various codes for the different materials are as follows:
1. Ammonia - 11
2. Urea - 12
3. Offsite - 13
4. Product handling -14
5. Power plant -15
2 digits = for the plant location
3 digits = for the equipment
3 digits = for the material
3 digits = for the size and
1 digit = for the item identification.

Packing & Dispatch


All packing, boxing and protection shall conform to the specification or requirements of the order.
The supplier shall be held liable for the damage or breakage of the goods due to defective or insufficient
packing. It will be according to term and conditions that are given already in the format.

All goods shall be dispatched by rail/road freight paid and the railway receipt/lorry receipt shall be posted to
the concerned officer of IFFCO.

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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 indenter is called upon for the inspection of the material.
Sometimes inspection is done at the gate of IFFCO. Only after inspection material enters into the store.
If there is any damage in the material or they are insufficient in quantity then rejection report is prepared. Its
copies are distributed among all the parties which are involved in it.

Damaged/Short/Rejected Materials
If the materials are received short or in damaged condition, there are some
conditions in this regard.
 In cases where the responsibility for the transit insurance is on IFFCO a claim should be lodged with
insurance company for the value of material plus incidentals. This insurance is done by IFFCO TOKIO
GENERAL INSURANCE COMPANY. As soon as the shortage per damage of the materials is noticed the
material department will lodge the provisional claim with the underwriters and pass on the relevant papers to
the finance & accounts department for lodging monetary claim.

 Where the responsibility for short supply or damages in transit is of the suppliers, the material
department should take up the matter with the supplier for arranging replacement. A report is prepared in
this case. Its copies are sent to the supplier, purchase department and finance and account department.

STORE SECTION

Store of any organization is of vital importance. It is the responsibility of stores to receive the material
required by the organization's operations to keep it properly & to issue it as when required. The stores are
divided in two subsections for greater flexibility like receipt and custody section. In IFFCO there are two
stores.

1. Store A for Aonla-1( this store contains that spares which are used by Aonla-1)
2. Store B for Aonla-2 unit.( it contains mainly catalysts used by Aonla-2 )

Store has the following warehouses:

Page No.37
- Main Store
- Cement godown
- Petrol Pump
- Cable yard
- Chemical godown
- Paint godown

A. RECEIPT SECTION:-
This section is responsible for receiving the materials and inspecting them. The process involves
following steps.
1) The document regarding the material may be sent to the stores, purchase, concerned department.
But ultimately they have to be send to stores.
The documents may be:

 Goods receipt / railway receipt / challan

 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) Consignment's cases are intact. If not he will ask for open delivery. Then he has to deliver the goods to
stores. In case of damage he has to give a certificate. Some consignment may without document i.e. door
delivery and is some cases it may be face to face delivery.
5) If any discrepancy is found during checking, the accounts section is informed for necessary action and
getting claim from insurance company. The date of receipt is filled in CRR.
6) The next operation is filling the stores receipt vouchers (SRV). Here the quantity mentioned in challan
and purchase order are compared, SRV Has 7 copies, two for accounts and one for each purchase, stores,
indenter, master file & custody section.

B). CUSTODY SECTION:-


This section is responsible for proper keeping of materials and issuing them when required by
different department and contractors. The material received here is first checked as per SRV for every
material there is a card. These cards are located in bins according to code of material is received in custody
the card information is updated.
When someone wants to issue certain material he has to fill the store issue voucher (SIV). Once the
item is issued again information is updated in the kardex. When a particular part is returned then this

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received in stores, by internal stores return voucher (ISRV). After issuing the material the number of issue
and the quantity issued is noted in SIV control registers.
Custody section takes care of spares.

ACCOUNTING FOR STORES

General Outline of stores Function:


a. The authority of receipt, store and issue of all material is centralized in the materials department
subject to exception in permitted in certain cases. In certain cases a nominal stock of few consumable items
can be permitted with uses departments such as maintenance, laboratory and administration department for
meeting emergencies. In addition certain chemicals are permitted to be stored in production department due
to the operational needs.
1. The authority of storage of packing materials like bags is vested with bagging department. The
bagging department receives the material, gets it inspected in laboratory, issued the same for product
bagging and maintains the stocks
2. Maintenance of records for all quantitative transaction of packing material is the responsibility of
bagging department. Similarly the raw materials are handled by production department with all
responsibilities in respect of quantity accounting.
Functions of Store Accounting Section:-
The section dealing with accounting of stores in the finance department shall have following
functions:-
1. Accounting of receipts, issues, return and transfer of materials.
2. Accounting of imported materials for capital works and operations.
3. Associating with stores section for stock verification.
4. Valuation of stores items should do on weighted average basis.

Receipt /Issues/ Returns Transfer of Materials:-

a) The second copy of the material receiving reports after pricing, shall be passed on to the stores
accounts sections to scrutinized the same with reference to store item code quantity of measure etc. and
process it for accounting of receipt of materials. After issue / return of materials, issue section of stores
department arranges data entry on the daily basis. Checklist processed is sent to stores accounting section for
scrutiny in respect of store item code, cost / service code, expense code and unit measure etc.
b) The corrections and financial and financial adjustments are made to arrive at final check list after
scrutiny of final check list entry in priced store ledger is to be processed. The section shall ensure that all
receipts, issues and returns / transfer voucher raised by the stores section are finally posted in the price
store ledger.
c) For clearance of imported materials, amount deposited for custom duty in the PD account etc. Shall be
cleared against individual MRR's on receipt bill of entry.
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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.
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 Cleared by the accounts section dealing with the works. Recovery
should be predefined basis and must be uniform.

Insurance of Stock & Stores


For stocks of ammonia, naphtha, general stores, bags, phosphoric acid, and finished products held
at plants, insurance shall be taken to cover the risks arising out of fire explosion, riot, strike terrorism,
malicious damage, earthquake, etc. The stock of finished products lying at different marketing warehouses
should also be adequately covered through the warehousing agencies.
According to the value of stores and finished products keeps on varying from time to time, insurance
shall be obtained in the form of declaration policy whereby the average daily stock for each product held
during the month shall be declared to the insurers in the first week of the next month.

According to the declaration policy, the insured amount for each product shall be stated separately. The
liability of the insurers is limited to the insured amount. At any time if it is found that the actual stock is
more than the insured amount to avoid less amount of insurance. In case of a declaration policy, insurance
premium is payable for minimum 35 % of the insured value.
Before insurance is obtained, various categories of stores shall be reviewed with a view to select such
items for which insurance is considered necessary.
Verification of Inventories

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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.
In case of finished goods also the same principle applied except that no adjustments in the books of
accounts shall be made. However the stock registers shall be adjusted on the basis of actual stock in
order to replace the notional figures of stocks by more accurate estimate based on physical verification.
The inventories for other items such as stores, spares, construction materials etc. are also verified
every year keeping in view ABC analysis of stock items value and exercise of verification may be
completed by March every year.

For the purpose of verification of stores, chemicals & spare parts shall be classified in to A, B, C
categories.

Categories Value (Rs. per unit) Quantum of Verification


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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RECONCILIATION AND ADJUSTMENT

After each physical verification by the custodians of inventories and suitable adjustment action has to
be taken. It is desirable to complete the physical verification work by March every year so that
reconciliation/adjustment action can be completed within the year itself.
Internal Check
1) One set of document for receipts, issues and return of materials shall be sent to the accounting
section of finance department. Based on these documents, priced store ledger shall be prepared for each item
for stores. The material code number between stores and accounts shall be identical. The priced store ledger
shall provide value of each receipt, Issue and return transaction along with quantity ledger. The quantity
balance appearing in priced store ledger shall serve as counter check for accuracy of bin card balance in
store which is essential for proper functioning of inventory control system
2) The priced store ledger shall not be maintained for large number of low value items such as
stationery, medicines, canteen stores etc. in this case the expenditure shall be charged to the appropriate
expense account at time purchase. Quantitative record shall be kept by the concerned department and shall
be produced as and when required for audit purpose.

Inventory Control
Inventory control is concerned with minimizing the total cost of inventory. The three main factors in
inventory control decision making process are:
1. The cost of holding the stock (e.g., based on the interest rate).
2. The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
3. The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.
The third element is the most difficult to measure and is often handled by establishing a "service
level" policy, e. g, certain percentage of demand will be met from stock without delay.

Page No.42
The Inventory Management system and the Inventory Control Process provides information to
efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal
activities, and communicate with customers. Inventory Management and the activities of Inventory Control
do not make decisions or manage operations; they provide the information to Managers who make more
accurate and timely decisions to manage their operations.

A good inventory management policy should ensure smooth and uninterrupted supply without making
unnecessary investment of funds in inventory. This requires that inventory management policy must balance
the requirements of the following two opposing and conflicting ends:
i) To maintain a large quantity for smooth operation and efficient customers' services.
ii) To maintain only a minimum possible inventory because holding costs and opportunity cost of funds
invested in inventory.
OBJECTIVE OF INVENTORY CONTROL
Scientific control of inventories should serve the following purposes:
1) To provide the continuous flow of required materials, parts and components for efficient
uninterrupted flow of production.
2) To minimize investment in inventories keeping in view operating requirements.
3) To provide for efficient store of materials so that inventories are protected from losses by fire and
threat and handling time and costs are kept at minimum.
4) To keep surplus and absolute items to minimum.
5) To protect the inventory against deterioration, obsolescence and unauthorized use.
6) To ensure that finished goods are available for delivery to customers just to fulfill the orders.

TECHNIQUES OF INVENTORY CONTROL


Reduction of surplus stock is an essential requirement inventory control. Various techniques are
available to solve the various types of problems associated with inventory control:-
1) Min-Max plan
2) Order cycling system
3) Fixation of various levels
4) Use of control ratios
5) Review of slow and non-moving items
6) The ABC Analysis

1) Min-Max plan:
In this plan analyst lays down a maximum and minimum for each stock item. Minimum level
establishes the reorder point and order is placed for quantity of material, which will bring it to the maximum

Page No.43
level.
2) Order Cycling System:
In this system, quantities in hand of each item or class of stock are reviewed periodically. In that, if it
is observed that stock level of a given item will not be sufficient till the next schedule review keeping in
view of its probable rate of depletion, an order is placed to replenish its supply.

3) Fixation of Various Levels:


Certain stock levels or fixed levels are given below:-
A). Maximum Level
It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds
maximum level limit then it will be overstocking.
Maximum Level = Re-ordering level + Re-ordering Quantity

(Minimum Consumption Minimum Re-ordering period)


B). Minimum Level
It represents the quantity of stock that should be held at all the time, stock level is normally not
allowed facing below this level.

Minimum Level = Re-order level - (Normal consumption Normal Re-order Period)


C). Safety Level:-
Normal issues of stock usually stopped at this level and made only under specific instructions. Safety
stock is a buffer to meet some unanticipated increase in usage.

Safety stock level = Ordering Level - (Average rate of consumption Re-order level)

OR

= (Maximum rate of consumption – Average rate of consumption)Lead Time.

D). Re-ordering Level:-

When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again.

Re-ordering level = Maximum Consumption Maximum Re-order period.

4) Use of Control Ratios:


Inventory turnover ratio helps management to avoid capital being locked up unnecessarily. This ratio
reveals the efficiency of stock keeping.

Inventory turnover ratio = Cost of materials consumed / Cost of average stock


held during the period

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Where,
Cost of average stock = [Cost of opening stock + Cost of closing stock] / 2

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

TECHNIQUE USED IN IFFCO FOR INVENTORY CONTROL

The ABC Analysis:


With the numerous parts and materials that enter into each and every industrial production, inventory
control leads itself, inventory and foremost, to the problem of analysis. Such analytical approach is popularly
known as ABC (ALWAYS BETTER CONTROL) Analysis.
This Plan is based upon segregation of material for selection control. It measures money value i.e.
cost significance for each materials item in relation to total cost and inventory value. The logic behind is that
the management should study each item of stock in terms of its usage, lead-time , technical or other
problems and its relative money value in the total investment in inventories.
Critical, i.e. high value items deserve very close attention, and low value items need to be devoted
minimum expense and effort in the task of controlling inventories.
The ABC Reports are made:
"A" inventory reports lists parts having little or no turnover. Turnover frequency is measured by an
exposure index. We calculate the index by dividing a part's inventory quantity by its usage during the most
recent 24 month period.
"B" report shows the parts with more than a one year supply but less than a 2-year supply.
"C" report lists the parts with more than six months supply but not more than one year.
Criteria For Judging The Inventory System:-
While the over-all objectives of the inventory system is to minimize the cost to the firm the risk level
acceptable to the management, the more proximate criteria for judging the are:
Comprehensibility:-

Inventory system range from the utterly simple to the complex ones. Irrespective of how simple or how
complex a system is, regardless of whether it is automated or manual, it should be clearly understood by all

Page No.45
affected parties. The system must be properly explained to all concerned people so that its purpose, logic and
rationale are transparent.
This generates enthusiasm for the system and enhances its credibility. Otherwise it is likely to be
perceived as a mysterious 'Black box' of dubious value.

Adaptability:-
The questions raised in this context are:
1. Is the system responsive to change?
2. Can new products, new situations and new requirements be handled by the system?
A certain degree of flexibility and adaptability must be desired into the system to make it versatile.
Of course this cannot be and this should not be carried too far. The system must not provide for every
possible and imaginable contingency. If it is developed with this ideal, it is likely to be a complex
monstrosity. Remember the caveat that the design of any system should ordinarily take care of about 90% of
the cases, leaving the balance 10% to be handled by hand.

Timeliness:-
Inventories may suffer loss in value on account of a variety of factors. The more common sources of
value decline are:

 Obsolescence caused by changes in technology & shifts in consumer taste.

 Physical deterioration with the passage of time.

 Price fluctuation because of inherent volatility of certain commodities


The inventory system should be capable of inducing timely action. It should provide adequate
forewarning which triggers appropriate corrective steps

Inventory Software:-
In IFFCO the PSL software is used for the management of inventories. This software holds all the
transactions of the stocks. So this software helps much in maintenance of stocks. It makes very easy to
account persons to maintain the transactions of inventories.
A part of this software is installed on the systems of the stores, whenever a transaction is made in the
store, the details of that transaction is reaches to the systems of the store accounting section, because both
the systems are connected in the local area network (LAN). So with the help of LAN environment it is very
easier to accountants to retrieve the information regarding the transactions made by the stores.
A part from this, this software has the variety of qualities which we can discuss with the help of
menus of software. There are six different menus in this software these are as follows:
1. Data entry
2. Queries

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3. Reports
4. Processing
5. Calculator
6. Exit

ANALYSIS

AONLA- I

INVENTORY - GENERAL STORES

It has the highest value in total inventory and plays significant role in increase or decrease of total inventory.

It contains pipes, fittings, valves, lubricants, electric items, general items that plays a significant role in
increase or decrease of its inventory.

Total inventory of general stores was 1527.47 lakhs in 2007 that increased to 1678.51 lakhs i.e. by 9.89%
and in 2009 it increased by 53% and then there was a decrease by 5.63% in 2010.

PIPES

In 2007 the inventory of pipes was 104.05 lakhs. That increased by 76.8% in 2008.this was due to drastic
increase in its issue by 88.35%. In 2009 the inventory of pipes again increased by 31.63% and in 2010 it
decreased by 15.76%.This was due to less receipt and increase in issue by 61.91%.this shows that from 2008

Page No.47
to 2009 inventory is increasing but issue decreases that means there was high receipts in this year i.e. more
purchase of pipes inspite of its less usage because of which inventory turnover decreased in 2009 and
holding period increased.

FITTINGS

Its inventory increased from 114.02 lakhs. to 136.05 lakhs. in 2008 i.e. by 19.32% then in 2009 it increased
to 184.17 lakhs i.e. by 35.37%. this was due sudden decrease in issue by 84.97%. this was due to unused
items of ESP project are received by stores and in 2008 CEP project was finished that caused in decrease in
issue. In 2010 the inventory went down by 3.43% and issue also decreased by 4% due to which the inventoty
turnover decreased and holding period increased as it is a inverse function of inventory turnover.

VALVES

As in above cases its inventory also first increased from 2007 to 2009 then decreased in 2010. Its inventory
was 138.26 lakhs in 2007 that increased by 182.05% in 2008. In 2009 it was increased by 20.46% and in
2010 it again decreased by 8.01%. this was because its issue first increased in 2009 and then decreased in
2010. As there is decrease in usage of items the inventory turnover also decreased in 2010 and the holding
period increased to 109.09 months that is quite a high time period.

LUBRICANTS

There was a sudden fall in the inventory of lubricants from 2007 to 2008 . It was 259.98 lakhs in 2007 and
in 2008 it came down to 33.89 lakhs i.e. by 86.96%. in 2009 there was a increase in it by 105.28% and then
in 2010 there was a fall in its inventory. Issue of it decreased by 35.49%in 2010 due to which its inventory
turnover increased and holding period decreased. In 2010 its issue increased by 112.38% because of that its
inventory came down in 2010 and inventory turnover increased and thus holding period decreased.

ELECTRIC ITEMS

Same is the case of electric items. Its inventory was 189.99 lakhs in 2007 that increased by 52.3% , in 2009
its increase was by 3.946% and in 2010 it went up by11.65%. There was decrease in issues. There was
continuous increase in its inventory even when its issue was going down that shows there was regular
purchase of these items even when they are not in so much use.This was done due to the reason that it takes
many days in purchasing items and this inventory has to be maintained for sudden demand of these items.

Due to high inventory and low issue its inventory turnover has a decreasing trend and its holding period
increasing.

GENERAL ITEMS

Page No.48
These are the items that are used all the plants and offices of this unit. Its inventory was 129.70 lakhs and it
came down to 97.62 lakhs in 2008, then in 2009 and 2010 there was an increase in it. The issue values are
decreasing with increase in inventory that shows there is not better utilisation of kept inventory.

But due to the time taken by purchare process there may be shortage of these items when they are needed so
there regular purchase is being done. Due to decrease in inventory turnover value its holding period
increased.

TOTAL GENERAL STORE

it was 1269.36 lakhs in 2007 and was increased by 13.31% in 2008. It went up by 17.24% in 2009 and in
2010 there was a down fall in its inventory by 5.56%. although its average inventory for 2008, 2009, 2010 is
in increasing pattern.Its issue was 1249.02 lakhs in 2008 that decreased by 41.23% and then increased by
13.01% . Because of above reasons the inventory turnover first decreased in2009 then increased in 2010 and
the vice versa for holding period.

Groups like FLANGS, BOLT,NUTS STUD, FASTENERS, BEARING, WELDING MATERIALS,


HOSES BELT, TYRES, TUBES, LAB CHEMICALS, GLASS WEARS are having less inventory and
are having almost same level of inventory and there issue are also less and of almost same values for the 3
years.

BELLOWS, FILTERS, SPECIAL FITTINGS, CIRCLIPS, ABRASIVES, SAND, PAINT, SCRAP


MATERIAL are having zero or very less inventory that does not effect the otal inventory very much.

FIRE AND SAFETY

Its inventory increased and then there was a sudden fall in 2009. Issue of it also decreased in 2009 but the
inventory turnover remains same for 2008and 2009 i.e. .47. this is so because the recipts decrease d with
issue. In 2010 inventory goes up but issue value came downbut the holding period was almost same.

TOOLS AND SPARES

It has a trend of decreasing inventory over these 3 years.its issue values are also decreasing, thats why its
inventory turnover is decreasing. These are the items that are not of regular use but then also its inventory
has to be maintained.

GENERAL STORES – ESP

FILTERS, WELDING MATERIALS, RINGS, GASKETS, SHEET, PA, GENERAL ITEMS are
having no or negligible inventory and PIPES, FITTINGS, VALVES are having decreasing trend of
inventory and trend of increasing issue .Thus inventory turnover increases and holding period decreased.

Page No.49
ESP total is decreasing . There was decrease by 99.4% in 2010 from 2009. And an increase in issue was
838.21% due to which its inventory turnover increased in 2009 and holding period decreased for that period.

INVENTORY - SPARES IN STOCK

It has the items that are used specifically by different plants. It has major inventory of AMMONIA, UREA,
OFFSITE, PRODUCT HANDLING , STEAM & POWER.

AMMONIA

Inventory is increasing for 2008, 2009, 2010 is increasing constantly. Its inventory was 640.45 lakhs2007

That comes down by 4.56% in 2008. In 2009 it increases by 84.45% and in 2010 it goes up by 6.51% but
issue is decreasing over these years so inventory turnover also decreased.

UREA

Its inventory increased till 2009 and then there was a sudden fall. Its issue also decreased. Thus its inventory
turnover increased . there was a decrease by 1.53% in 2010.

OFFSITE

Its inventory has an increasing trend. In 2008 it increased by 18.02% , in 2009 by 3.01% and in 2010 by
20.1%. Its issue first increased from 2008 to 2009 and in 2010 it suddenly decreased due to that its turnover
is more in 2009 .

PRODUCT HANDLING

It has a trend of decreasing inventory over 3 years i.e. there was less receipts but its issue increased by
70.4% in 2010 due to that its inventory turnover for this year increased.

TOTAL SPARES

It was 1703.15 lakhs in 2007 that decreased by 5.72% in 2008 , increased by 35.48% and in 2010 it
increased by 12.5% . Its issue decreased in 2009 and increased in 2010 by 201.89%. thus its inventory
turnover increased in 2010.

INVENTORY - LOOSE TOOLS IN STOCK

Its inventory is increasing over the yearsand issue is decreasing that shows purchases are being done even
when its usage rate is low as it can be demanded any time . Thus its inventory has to be maintained anyways.

INVENTORY - CATALYST IN STOCK

Page No.50
Its inventory was decreased by 86.62% in 2009 and by 33.75% in 2010. Its issue increased by 412.52% and
then decreased by 99.89%. its inventory turnover increased in 2009.

INVENTORY - STEEL

It has decreasing inventory in 2008, in 2009 it increased by 136.98% and then there is a decrease in it. Its
issue increased by 202.62% and then decreased by 73.55% in 2010 due to that inventory turnover first
increased in 2009 and then decreased in 2010.

INVENTORY - TIMBER

Since there is very less usage of timber so, its inventory is kept very low and its issue is also less. It has a
high value of issue in 2008 when there was CEP project running and after that it decreased.

TOTAL INVENTORY

In 2007 it was 3731.88 lakhs. It decreased by 2.23% in 2008 , increased by 14.28% in 2009 and in 2010 it
increased by 5.33%. this increase was due to decrease in issue and increase in receipts . Its reason may be
that the CEP project was finished in 2008 that results in decrease in issue and thus its inventory turnover
decreased and its holdind period increased but with small rate.

AONLA –II

INVENTORY - GENERAL STORE

General items plays important role in increase or decrease of its inventory. Its inventory was 635.84 lakhs in
2007 that increased by 11.87% in 2008, again in 2009 it increased by 59.36%. This was due to increase in
purchases and receipt due to completion of project CEP in 2008. In 2010 its inventory goes down by
5.577%, its issue decreased by 66.43%. This was due to fewer receipts. Due to above reasons its inventory
turnover ratio decreased constantly over last 3 years and holding period increased. To make this at constant
level its inventory should be kept at moderate level.

PIPES

Pipes plays a significant role as it has high inventory above all other items. In 2007 the inventory of pipes
was 128.93 lakhs and it increased by 37.76% in 2008. In 2009 it increased by 86.68% and then in 2010 it
decreased by 15.77%. Increase of inventory in 2008 was due to finished projects. In 2009 there was a
drastic decrease in issue by 78.95% and it reduced by 20.36%. we see that even when issue is decreasing
inventory is increasing due to which its inventory turnover decreased and holding period increased.

Page No.51
FITTINGS

Inventory of fittings increased. In 2008 it was increased by 19% , in 2009 by 48% and there was a negligible
decrease in it in 2010. Inspite of this its issue decreased over last 3 years. In 2010 it decreased by 60.77%.
Its inventory turnover has a trend of decreasing values. And it has a trend of increase in holding period.

VALVES

It has a trend if increase in inventory over last 3 years. In 2008 it was increased by 16.26%, in 2009 by
62.41% and in 2010 by 10.23%. Its issue decreased over 3 years. In 2009 it was decreased by 35.67%, in
2010 by 68.26%. Inspite of decrease in issue its purchase is increasing due to which inventory turnover
decreased and holding period increased.

ELECTRICAL ITEMS

In 2007 its inventory was 52.9 lakhs that decreased by 5.03% in 2008, in 2009 increased by 9.612% and in
2010 it increased by 22.93%. Its issue increased by 13.97% and then Decreased by 4.55%. there was a small
change in inventory ans issue so its inventory turnover is almost same for these years.

GENERAL ITEMS In 2008 its inventory increased by 22.08% , in 2009 by 32.804% and its issue
decreased by 69.08%. In 2010 its inventory goes down by 16.43% and issue increased by 94.2%. Its
inventory turnover decreased to .11 in2009 and then increased in 2010 to .21.

STRAINER, FILTERS, BELLOWS, ABRASIVE, SYNTHETIC PAINTS, INDUSTRIAL FUEL,


LAB CHEMICAL, GLASS WEARS, FIRE AND SAFETY ITEMS ,INDUSTRIAL GASES are having
zero or very low inventory. Same was the case with issues it was either 0 or very low. This shows that these
items are either not in regular and frequent use or they are used in less quantity that is why its inventory is
not required in heavy quantity.

INVENTORY- GENERAL STORES – ESP

It was 131.18 lakhs in 2007. There was a decrease in 2008 in its inventory by 1.56% and came down to 0 in
2009. Its issue increased by 6049.04% in 2009. This was to clear out all its inventory by issuing it.

In this group pipes, flanges, fittings, valves plays significant role . but at the end inventory of all these items
under ESP becomes 0.

Total inventory of spares has a increasing graph over last 3 years. In 2007 it was 1258.53 lakhs and
increased by 21.66% in 2008, 7.53% in 2009 and 13.99% in 2010. On the other hand its issue increased by
314.41% in 2009 and decreased by 76.8% due to which inventory turnover increased in 2009 and decreased
to .09 in 2010.

INVENTORY- SPARES IN STOCK


Page No.52
AMMONIA

It has the highest inventory above all other items under this group. Its inventory increased over last 3 years.
In 2007 it was 782.15 lakhs, in 2008 it increased by 25.52%, in 2009 it increased by 4.54% and in 2010 by
14.55%. Its issue value increased drastically in 2009 by 823.34% and then there was a sudden fall in 2010
96.87%. inventory increased inspite of decrease in issue due to which the inventory turnover decreased . this
shows there not proper utilisation of items under this group.

UREA

It also has trend of increasing inventory over last 3 years. In 2007 it was 306.11 lakhs that increased by
18.7% in 2008, by 37.01% in 2009 and by 9.45% in 2010. As in the case of ammonia it also has a increase in
issue in 2009 and decrease in 2010. In 2009 it was increased by 35.03% and decreased by 2% in 2010.

The fluctuation in inventory is not very high thus the inventory turnover has not been fluctuated very much.

OFFSITE

Its inventory was 99.77 lakhs in 2007 that was increased by 15/145% in 2008 and then a sudden fall in 2009
by 45.77% and then again decreased in 2010 by 4.56%. Its issue value has a increase in 2009 by 571.08%
and in 2010 it decreased by 87.1%.

PRODUCT HANDLING

It was 55.39 lakhs in 2007 and increased by 1.55% in 2008. In 2009 it went down by 7.96% and in 2010 it
increased by 23.7%. Its issue is lower than other items in this group. In 2009 issue decreased by 8.09% and
then increased by 60.34% in 2010. Its inventory turnover decreased in 2010.

LOOSE TOOLS IN STOCK

Its inventory is constant over last 3 years , even the issue was in 2007 of low value. There was 0 or
negligigle issue in 2009 and 2010, due to which inventory turnover is very low.

INVENTORY - CATALYST IN STOCK

In 2007 it was 406.55 lakhs and decreased by 42.04% in 2008, increased by 301.97% in 2009 and in 2010 it
decreased by 47.12%. Its issue increased by 164.785 in 2009 and in 2010 it decreased by 8.123%. Its
inventory turnover increased in 2009 and decreased in 2010. As holding period for catalyst should not be
very high, for this its inventory should be maintained to desired level.

INVENTORY STEEL-STRUCTURAL

Page No.53
It has increasing trend over the last 3 years. In 2007 it was 34.30 lakhs and increased by 20.44%in 2008,
increased by 107% in 2009 and decreased by 14.06% in 2010. Its issue increased by 188.8% in 2009 , in
2010 it decreased by 73.07%. due to that its inventory turnover increased in 2009.

INVENTORY CEMENT

There is no inventory of cement at all that means there is no or very low usage of it.

OVERALL INVENTORY

The inventory was 2337.93 lakhs in 2007 and it increased by 7.88% in 2008. In 2009 it increased by 43.62%
and in 2010 it decreased by 7.77%. Its issue increased by 89.01% in 2009 and decreased by 47.014% in
2010. Due to this its inventory turnover is more in 2009 and there was a decrease in 2010 in inventory
turnover. Its holding period decreased in 2009 and then sudden increase in it in 2010.

The inventory of Aonla I is much more than of Aonla II even though their production capacity is same . this
is because some items are stored in aonla I that are issued for aonla II also.

TREND FOR TOTAL INVENTORY IN AONLA I AND AONLA II

Page No.54
TREND OF INVENTORY IN GENERAL STORES AND SPARES IN AONLA I AND AONLA II

8000
7000
6000 spares(in lakhs ) aonla
II
5000
spares(in lakhs ) aonla
4000 I
3000 general stores( in
lakhs) aonla II
2000
general stores( in
1000 lakhs) aonla I
0
2007 2008 2009 2010

INVENTORY OF AONLA I

2007
1%
1%
4% raw material
3%
storesand spares
0% 8%
30% loose tools
chemicals& catalyst
packingmaterial
construction material
53% stock in process
finished goods

Page No.55
3% 2008
2%
3% 0%
raw material
1% 6% stores and spares
loose tools
46% chemicals & catalyst
packingmaterial
39% construction material
stock in process
finished goods

1% 2009
3% 1% 0%
raw material
1% 14% storesand spares
7%
loose tools
chemicals& catalyst
packingmaterial
construction material
73% stock in process
finished goods

Page No.56
2010
1% 0%
raw material
3%
8% 7%
stores and spares
loose tools
13%
chemicals & catalyst
1%
packingmaterial
construction material
67%
stock in process
finished goods

INVENTORY OF AONLA II

Page No.57
2007
0%
raw material
4% stores and spares
16% 0%
loose tools
35% chemicals & catalyst
construction material

42% packingmaterial

0% stock in process
3% finished goods

1%
2008
1%
1%
0% 0% raw material
0%
8% stores and spares
loose tools
chemicals & catalyst
construction material
packingmaterial
89% stock in process
finished goods

Page No.58
0% 4% 0% 2009
2% 0%
raw material
stores and spares
loose tools
31% chemicals & catalyst
construction material
63%
packingmaterial
stock in process
0%
finished goods

2010
0% 0%
raw material

2% 0% 14% stores and spares


loose tools
chemicals & catalyst
19%
construction material
65% packingmaterial
0% stock in process
finished goods

Findings

 Lack of proper inventory management as demand persuade


Page No.59
 Need to work in such a way turnover ratio is good

 As inventory of urea is most precious thing for agriculture. They have to proper go downs rural
areas also.

 Not using JIT and ERP.

 IIFCO have five different plants in India. They are purchasing separately.

 India is based upon agriculture. If the prices of raw material increase in that condition IFFCO cannot
hike the price easily.

Limitation

 In this study using the secondary data through internet and articles. These data based upon past
research. It may be relevant or not.
Page No.60
 Company does not give original document and data for study.

CONCLUSION

The basic objectives of inventory management appear to be conflicting in nature.Inventories should increase
Page No.61
or decrease in amount or time as related to sales requirement and production schedules.

In most inventories a small proportion of items accounts for a very substantial usage(in terms of
monetary value and annual consumption)and a large proportion of items accounts for a small
usage.ABC analysis based on this empirical reality advocates in essence a selective approach to
inventory control, which calls for a greater concentration of efforts on inventory items accounting for
the bulk of usage value.

Responsibility for control of inventories is of the top management, though decisions in this regard
might will be based upon the combined judgment of the production manager, the sales manager and
the purchasing manager. This is desired in view of the financial considerations involved in the
problem and also because of need for coordinating the different kinds of inventories and conflicting
viewpoints of different departments. Decisions relating to inventories should be taken by higher
authority of the organization as well as departments.

As in maintainance of inventory two types of cost incurres in it holding cost and carrying cost.

So to lower it adequate level of inventory should be maintained. The items whose inventory are high
but issue are less should be tried to reduce .

Recommendation

Page No.62
 JIT (Just In Time) is a system in which material or the manufactured components and parts
arrive to the manufacturing sites or stores just few hours before they are put to use. The
delivery of material is syncronised with the manufacturing cycle and speed. JIT system
eliminates the necessity of carrying large inventories, and thus saves carrying and other
related costs to the manufacturer. This system requires perfect understanding and
coordination between the manufacturer an dsuppliers in terms of the timing of delivery and
quality of the material. Poor quality material can halt the production.

 In IFFCO ERP should be applied. Enterprise resource planning (ERP) is an integrated


computer-based system used to manage internal and external resources including tangible
assets, financial resources, materials, and human resources. It is a software architecture whose
purpose is to facilitate the flow of information between all business functions inside the
boundaries of the organization and manage the connections to outside stakeholders. Built on a
centralized database ERP systems consolidate all business operations into a uniform.

 If all plants of IFFCO will purchase together then raw material will get at low cost.

 IFFCO should use professionalism.

 IFFCO should export the product.

REFRENCES

• www.Iffco.nic.in

Page No.63
• Annual report 2010 of IFFCO

• Accounting Manual of IFFCO

• NIT of purchase department of IFFCO

I.M. Pandey (2009) ,Financial Management,9th Ed. New Delhi: Vikas Publisher Ltd. Pp.624-
638.

Page No.64