Post on 20-Apr-2015
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.
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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
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 10
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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
(Previous best 32.26 lacs MT in 2006-07)
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
(Previous best 58.69 lacs MT in 2008-09)
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)
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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.
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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.
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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
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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
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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
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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
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LINE OF CONTROL IN FINANCE ACCOUNT
DEPARTMENT
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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)
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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).
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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
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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
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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.
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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.
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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.
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Increasing numbers of cancelled orders.
Large quantities of obsolete items.
Periodic lack of sufficient space.
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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.
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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.
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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
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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.
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Cost formulae for determining cost of inventories
Weighted Average Method
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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.
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- 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.
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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,
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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.
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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.
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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:
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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.
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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:
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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
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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.
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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)
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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
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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:
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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
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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.
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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.
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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
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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
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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
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 76
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.
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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 78
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.
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 79
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.
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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.
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 81
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.
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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 83
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.
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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.
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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.
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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 87
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.
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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 89
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
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