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Project report submitted for the partial fulfillment of the MASTER OF BUSINESS ADMINISTRATION In UKA TARSADIA UNIVERSITY Under the guidance of
Faculty Guide Miss Shahenaz Imam (Teaching Assistant) Submitted by: Desai Hiral Vinaybhai Chauhan Deepak Ramanand 201104100710069 201104100710089
Shrimad Rajchandra Institute of Management and Computer Application MBA Programme 2011 -13 Uka Tarsadia University, Tarsadi
INSTITUTES CERTIFICATE
STUDENTS DECLARATION
We, Hiral V. Desai & Deepak R. Chauhan, hereby declare that the report for Winter Training entitled A Study on Inventory Management at Krishak Bharti cooperative Ltd., Hazira is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.
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PREFACE
The Winter Training Project has been prepared as per the syllabus prescribed by Uka Tarsadia University for MBA students. Understanding of both practical and theoretical knowledge is essential in this competitive world. Training is an important aspect of study.
The basic aim of the training in management field is to know how to apply management theories in practice. Experience makes man perfect; therefore practical study is very important for management student. Practical training helps in comprehending the theory of subject taught in a class room. This is more applicable in the case of management education. Our training at the Krishak Bharti co-operative Ltd. has such effect to complete the knowledge acquire in the subject of Finance and Accounts (F&A) and other. Thus it is our moral and obligatory duty to take part of our studies which great enthusiasm and seriousness and gives them due importance.
Last but not least, we received all the information and co-operation from the organizations various departments. We hope that this report will meet the educational requirements.
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ACKNOWLEDGEMENT
It is a great pleasure for me o acknowledge the assistance and contributions given by large number of individuals to this effort. First and foremost we wish to express our deepest gratitude to Hon. Mr. Prashant Joshi, Director, SRIMCA, Bardoli for giving us the opportunity to do this project work . We are indebt to the institute. Secondly, our deepest gratitude to Mr. Mulchandji sen, Miss. Swapna Nair and Miss Apurva Jain, Winter project co-ordinator, for the encouragement and co-operation extended to me and for their help and useful suggestions for this Winter project. We are deeply thankful to our mentor , Prof. Miss Shahenaz Imam , SRIMCA, who spared her valuable time and efforts to guide us in the completion of the project. Our sincere thanks to Mr. G.S. Mathur , Chartered Accountant, Kribhco,Hajira PlantSurat who in spite of his busy schedule help us to get all data and information required for our project. We are equally obliged to express our gratitude to Mr. Girish Prajapati, Accountant and all the staff of Finance and Accountant (F&A) and stores Department of Kribhco, Hajira Plant, Surat,Gujatat, for offering their all kinds of help and encouragement for completion of our Project. Hiral Desai 11MBA070
INDEX
1. EXECUTIVE SUMMARYpg.. 2. INTRODUCTION..pg.. 2.1. INVENTORY CONTROL...pg.. 2.2. INVENTORY CONTROL TECHNIQUES.pg.. 3. LITERATURE REVIEWpg.. 4. COMPANY PROFILEpg.. 4.1. FERTILIZER INDUSTRY...pg.. 4.2. KRIBHCO OVERVIEW...pg.. 5. RESEARCH PROBLEM.pg.. 6. RESEARCH OBJECTIVE ..pg.. 7. RESEARCH METHODOLOGY.pg.. 7.1. TYPES OF RESEARCH DESIGNpg.. 7.2. DATA COLLECTION TECHNIQUES.pg.. 8. ANALYSIS AND INTERPRETATION OF DATApg.. 8.1. INVENTORY OF MATERIALS ..pg.. 8.2. SELECTIVE CONTROL TECHNIQUES.pg.. 8.3. ECONOMIC ORDER QUANTITY ..pg.. 9. CONCLUTION AND RECOMMENDATIONpg.. 10. BIBILIOGRAPHYpg..
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 number of co-operative societies associated with IFFCO have risen from 57 in 1967 to 39,800 at present. IFFCO was registered on November 3, 1967 as a multi-unit co-operative society. On the enactment of the multistate co-operative society. The society is primarily engaged in the production and distribution of fertilizers. Exports of fertilizers, which account for 7% of US exports to India, fell sharply by 58.5% from $2.79billion in 2008 to $1.16billion in 2009. KRIBHCO manufactures urea, ammonia Argon, bio-fertilizers, hybrid seeds & heavy water at Hazira in the State of Gujarat, on the bank of the Tapti River near Kawas village, 15 km from Surat and 20 km from the Surat Railway Station, on the Surat-Hazira State Highway. Hazira Fertiliser Complex has 2 Streams of Ammonia Plant and 4 Streams of Urea Plant. Annual re-assessed capacity for Urea and Ammonia is 1.729 million MT and 1.003 million MT resepctively. Production of Biofertilizer plant commenced plant of 100 MT per year capacity was commissioned at Hazira in 1995. An additional capacity of 150 MT was added to that plant in 1998. Subsequently, two more Bio-fertilizer plants, each of 100 MT capacity, were installed at Varanasi, Uttar Pradesh and Lanja, Maharashtra in 2003 and 2004 respectively. The global production of Urea was about 592 lakh metric tonnes (LMT) N during 2005. Out of which 453 LMT N was meant for domestic markets and about 136 LMT was exported. The major exporting regions include Russia and Ukraine in East Europe & Central Asia and Middle East countries, which account for about 60% of the world export of Urea. Other major exporting
countries include Germany and Netherlands in West Europe, Romania in Central Europe, Canada, and U.S.A. in North America, Trinidad and Venezuela in Latin America and China, Indonesia and Bangladesh in Asia. The research conducted in about the inventory control techniques applied in KRIBHCO Hajira plant and its effectiveness. The inventory of this plant is increases from Rs 97 crore in 2007 , 31.8 crore in 2008 (Due to Recession), 29.3 crore in 2009, 66.6 crore in 2010, 88.1 crore in 2011 and 25.5 crore in 2012. The increase in inventory due to expansion projects , increase in production , bulk purchase of raw materials and change in man power and increase due to spares but there is fluctuation in the figures. The research objective is to study and understand the inventory of all materials and analyzing the effectiveness of various techniques used in KRIBHCO. Finally, recommending methods and strategies to control the inventory.
[2] INTRODUCTION
2.1. NEED FOR INVENTORY Inventory control can be defined as Determining and maintaining optimum investment in inventory given the significance of benefits and cost association with holding inventory. Inventory control relates to a set of policies and procedure by which an industries determine which materials it will hold in stock and the quality of each that it will carry in stock. Therefore inventory control is otherwise known as STOCK CONTROL. OBJECTIVES OF THE INVENTORY CONTROL Inventories constitutes second largest category of all manufacturing operation exceeded only by plant and equipment and followed by receivables. The objectives of Inventory control are: a) To keep required stock of materials so that production and maintenance activities do not suffer b) Minimum blockage of funds in inventory .Optimization can be achieved and efforts needs to be made to improve input output ratio of materials by scientific methods of determining.
Since the advent of modern industrialism, wealth has become more and more identified with Money. An increased emphasis on liquidity has led businessman to hold cash and securities in performance to inventories. Inventories are now often referred to as the grace yard of business. The surpluses of stocks have been a principal guide of business failure. Thus led manager to change their view regarding holding of inventories and adopt scientific way of Inventory holding. Following are the factors for adopting view of scientific Inventory control. SIZE OF BUSINESS: The increasing size of business establishment has helped an important role. Modern large-scale enterprises often operate with small profit margin, which can be easily eliminated by scientific Inventory control methods. Further the size itself, makes possibilities of substantial saving through improvement in Inventory control system.
WIDE VARIETY AND COMPLEXITY: The wide variety and complexity of modern requirements also necessities conscious Inventory Management. The larger the range of requirements, the greater the number of problem of Inventory i.e. the problem of investment, procurement, storage, holding, accounting, shortages and stocks outs etc. these purpose the need for careful competition of requirements timely initiation of procurement action, scientific determination of economic order quantities and optima safety stock levels, a purposeful reporting system to highlights areas requiring special attention and for a variety of other control measures. URGENCY IN MATERIAL REQUIREMENTS The need and important of inventories varies in direct production to the ideal time, cost of men and machinery and urgency of requirements. But it is highly uneconomical to keep man machine waiting and the requirements of modern life are so urgent that they cannot wait for materials to arrive after the need for them has arisen. Since time is money and waiting is costly inventories have to be maintained. at the time it is also necessary to control them the reason being is that the inventories not only tie up lot of funds but also a deal to carry them controlled inventories is industries concern. NEED FOR LIQUIDTY The need for liquidity is much greater than in trade. The reason is that manufacturing is the process of continual conversion of raw materials in to finished product, involving expenditures on labor, machines etc. an industrial establishment has, therefore, to find cash not only for inventories but also for wages, maintenance, stores and power bills. The only way to prevent as to secure a rapid capital turnover of capital and the most effective means of achieving these objectives is to control stores.
Perpetual Inventory values provide a consistent and reliable basis for preparing financial statements. TYPES OF INVENTORIES Depending upon the types of business, generally the Inventories Varies .But in a manufacturing industry the inventory can be classified into four broad categories: 1. Production Inventory : It contains materials purchased from market like raw materials: Gas, oil and various types of tools and machinery etc and components manufactured in their own industry and kept in stock for self consumption for use in manufacture. 2. Maintenance ,Repair and operating Inventory: Contains materials purchased from vendors to maintain the production process and these maintenance and repair and operating inventory do not form part of the finished products. 3. Work-in-progress Inventory : This contains manufactured good kept in stores , warehouse or retail outlets, stock yard for sale to consumers.
RAW MATERILAS
WORK IN PROGRESS
FINISHED GOODS
FACTORS INFLUENCING INVENTORY How much to buy at onetime and when to buy this Quality. These are two fundamental things on which inventory control depends .Many factors govern these fundamental things. The prime factors that govern these two fundamental things are : 1. 2. 3. 4. Requirements Quality in stock or an order Lead Time Obsolesce
CONTROL , MAINTENACE AND MANGEMENT The essence of inventory control , broadlyspeaking consists of revolving the following three factors: 1. Necessity for stocking an items 2. Time for reordering the items 3. Quality per order to be order
Continuous and periodical review is required in the evaluation of inventory management and treats it as a continuous process as costs, source of supply, availability of materials, consumption will vary in the course of time making the previous assessment invalid. This process also helps in standardization of materials for procurement by using near equivalent and eliminating material, which are discounting as a regulation, which will remove obsolescence.
2.2. INVENTORY CONTROL TECHNIQUES Inventory is being maintained as a cushion in supply of materials for continuous production without causing stock out situation. This cushion should not be suicidal to any organization. The following scientific techniques and methods are being used in control of inventory. 1. 2. 3. 4. 5. 6. Inventory Mangement Techniques Standardization Selective Inventory Control Just In Time Perpetual Inventory System Inventory Turnover Ratio
1. ECONOMIC ORDER QUANTITY:If the firm is buying raw materials, it has to decide lots in which it has to be purchased on replenishment. If the firm is planning a production run, the issue is how much production to schedule. These problems are called order quantity problems and the task of the firm is to determine the optimum or economic order quantity. (a) Ordering cost The term ordering cost is used in case of raw materials and includes the entire cost of acquiring raw materials. (b) Carrying cost : Cost incurred for maintaining a given level of inventory is called carrying cost.
Economic Order Quantity is given by the formula: EOQ = And the cost of inventory is given by formula: Total cost of inventory = (A x P) +(A x Q)/EOQ +(EOQ x C)/ 2
Where, A= Annual Consumption ( in units ) O= Ordering cost per order (in Rs) C= Carrying cost per unit (in Rs) P= Price per unit (in Rs)
2. Reorder Point The reorder point is that inventory level at which an order should be placed to replenish the inventory .To determine reorder point : (a) Lead time is the time normally taken in replenishing inventory after the order has been placed . (b) Average usage (c) Economic order quantity
3. Safety stock The demand for material may fluctuate from day to day. The actual delivery time may be different from the normal lead time. If the actual usage increases or the delivery of inventory is delayed the firm can face problem of stock out , which can be costly . So, in order to guard against the stock out the firm may maintain a safety Stock.
(2) STANDARDIZATION : Standardization is very essential to control the inventory, as by standardization reduction in variety of materials is possible. And because of the reduction in variety the advantages are low cost, low inventory, less storage stocks, conservation of materials, variety reduction, less paper work , easily follow up with suppliers, less number of orders. The importance of this field has been recognized since the days of F.W. Taylor , who first drew attention to this fundamental need in any organization .Just as work study is necessary preliminary to work simplification , and a basic technique for production control, quality control, materials handling , estimated cost control, etc Standardization is preliminary necessity to design a basic technique on build control and standardization procedure.
(3) SELECTIVE INVENTORY CONTROL MANAGEMENT Any manufacturing organization consumes few thousand items of stores. A high degree of control of inventories of each item would, therefore neither be practical considering the work involved , nor worthwhile since all items are not of equal importance. Hence it is desirable to classify or group items to control commensurate with importance. This is the principle of selective control as applied to inventories and the technique of grouping is termed as selective technique. Selective inventory means variation in the methods of inventory control from item to item and this differentiation should be on selective basis by classification. A company has to stock thousands of items of raw materials , standard parts, stores and spares, sub contract items, tools , stationary etc. To have better control over the inventory/ stock on hand , selective inventory control technique should be used in isolation/ or in conjuction. Thus , selective control means selecting the area of control so that required objective is achieved as early as possible without any lost of time due to taking care of full area Minimum lost of energy and efforts. At maximum cost without lost of time. There are following selective control techniques : ABC Analysis FSN Analysis XYZ Analysis VED Analysis HML Analysis
a) ABC ANALYSIS ABC Analysis is a selective control technique which is required to be applied when we want to control value of consumption of the items in Rupees obviously when we want to control value of the consumption of the material we must select those materials where consumption is very high. In any company manufacturing, there are number of items which are consumed or traded it may run into thousands. It is found after number of studies for different companies that Value of consumption of items (value in Rs ) 70% of consumption 20% of consumption 10% of consumption No. of items 10% of no.of items 15% of no. of items 75% of no. of items Grade A B C
A items these are those items which are found hardly 5% 10% but their consumption may amount 70% 75% of the total money spend on materials. B items these are those items which are generally 10% 15% of the total items and their consumption amounts to 10% 15% of the money spend on the materials. C items these are larger number of items which are cheap and inexpensive and hence insignificant. They are large in number of running into hardly 5% 10% of the total money spends on the materials.
(3)
(4) (5)
B Class Items C Class Items (Moderate consumption (Low consumption Value) value) Very strict control 1) Moderate control I. Loose control No safety stocks or 2) Low Safety stocks II. High safety stocks very low safety stocks Maximum follow 3) Periodic follow up III. Follow up and up and expediting expediting in exceptional cases Rigorous value 4) Moderate value IV. Minimum value analysis analysis analysis Must be handled 5) Can be handled by V. Can be fully by senior officers management delegated
b) FSN ANALYSIS This type of analysis is more concerned from the point of view of movement of the item or issue of the item under this type of analysis. F items are those items, which are fast moving i.e.in a given period of time, say a month or a year they have been issued up till number of items. Although fast moving does not necessarily mean that these items are consumed in large items. S items are those items which are slow moving in the sense that in the given period of time they have been issued in a very limited number of time. N non moving items are those, which are not at all issued for a considerable period of time.
Thus, stores department whose concerned with the moving of items would like to know and classify that the items are storing in the categories FSN. So that they can manage operate and plan stores activity accordingly. For example, for efficient operations it would be necessary that fast moving items as far as possible should be stored as near as possible to the point of issue. So that it can be issued with minimum of handling. Also such items must be stored at the floor level avoiding storing them at high heights. Similarly, if the items are slow moving or issued once in a while in a given period of time they can be stored in the interior of the stores and even at the higher heights because handling of these items becomes very rare. Further it is necessary for stores in charge to know about non moving items for various reasons:1. They mean unnecessary blockage of money and affecting the rate of returns of the company. 2. Further they also occupy valuable space in the stores without any usefulness and therefore it becomes necessary to identify these items and go into details and find reasons for their non moving and if justified to recommend to top management for their speedy disposal so that company operations are performed efficiently. Also inventory control to some extent can also be exercised on the basis of FSN analysis. For example, fast moving items can be controlled more severly, particularly when their value is also very high. Similarly, slow moving items may not be controlled and reviewed vey frequently since their consumption may not be frequent and their value may not be high.
c) XYZ ANALYSIS This type of analysis is carried out from the point of view of value of balance stocks lying in the stores from time to time and classifies all the items as given below. X items are those items whose value of balance stocks lying in the stock are very high. Y items are those items whose value of balance stock is moderate. Z items are those items whose value of balance stock lying in the stocks is very low. After knowing this type of classification and their items can be taken to control the situation as shown below: o From security point of view high value items must be stored and kept under lock an key or if not possible they should be kept in such a way that are always under supervision. Similarly arrangement can be made for y and z items accordingly.
o From inventory control point of view we must know why there is high inventory for X items. We should review inventory control procedure for each and every high items because stock should be maintained to take care of lead time consumption and also to provide safety stocks. For high value items lying in stores we should review the reasons for long lead time as well as demand variations and see whether lead time consumption and safety stocks can be reduced. Thus proper inventory control procedures can be developed on the basis of XYZ analysis. Thus proper selective control methods should be selected to control the materials and prevent from facing loss, taking advantage and knowing what exactly is to be done. d) VED ANALYSIS VED analysis is carried out to control situation, which are critical. When applied to material in VED analysis we try to identify material according to their criticality to the production, which means the material, without which the production will come to stop and so on from this point of view material classified in three categories:V- vital E- essential D- desirable Vital categories of the items are those items for the want of which the production will come to stop. For example:- Power in the Factory Essential group of items are those items because of non availability of which the stock out cost is very high. Desirable group of items are those items because of non availability of which there is no immediate loss of production and stock cost is very less and it may cause minor disruption in the production for a short time. e) HML ANALYSIS This analysis, analysis the material according to their prices and then classifies them as H item or M item or L items. H stands for high price, M stands for medium price and L stands for low price.
Since price is more concerned of purchase department mostly purchase department people analyses the material according to HML analysis. HML analysis must be carried out from any one of the following objectives or some of the objective as the case may be When it is desire that purchasing responsibility should be delegated to right level of people. When it is desired to evolve purchasing policies then also HML analysis is carried out i.e. whether to purchase in exact quantities as required or to purchase in EOQ or purchase only when absolutely necessary. When the objective is to keep control over consumption at the department level then authorization to draw materials from the stores will be given to high level H item, low level for L items and medium level for M items. When it is desired to decide frequency of stock taking then very frequently H category, very rarely L category and averagely M category. When it is desired to arrange security arrangements for the items, then H items under lock and key, L items keep open on the shop floor and under supervision for M items.
(4) JUST IN TIME INVENTORY SYSTEM Keeping in view the enormous carrying cost of inventory in the stores and go downs, manufactures and merchandisers are asking for more frequent deliveries with shorter purchase order lead times from their suppliers. Now days organizations are becoming more and more interested in getting potential gains from making smaller and more frequent purchase orders. In other words, they are becoming interested in just in time purchasing system. Just in time purchasing (JIT) is the purchasing of material or goods in such a way that delivery of purchased items is assured before their use or demand. Just in time purchasing recognizes too much carrying costs associated with holding high inventory levels. Therefore, it advocates developing good relations with suppliers and making timely purchases from proven suppliers who can make ready delivery of goods available as and when need arises. EOQ model assumes a constant order quantity whereas JIT purchasing policy advocates a different quantity for each order if demand fluctuates.EOQ lays emphasis on ordering costs to include purchase costs quality costs and stock out. Just in time purchasing takes into consideration all these costs and move outside the assumptions of the EOQ model.
Advantages of JIT purchasing 1. Investment in inventory is reduced because more frequent purchase orders of small quantities are made. 2. Carrying cost is reduced as a result of low investment in inventory. 3. A reduction in the number of suppliers to be dealt with is possible. Only proven suppliers who can give quick delivery of quality goods are given purchase orders. As a result of this reduction in negotiation time is possible. The use of long run contracts with some suppliers with minimal paper work involved is possible. 4. Quality costs such as inspection cost of incoming materials or goods, scraps and rework costs are reduced because JIT purchasing assures quick and frequent delivers of small size orders which results in low level of inventories causing minimum possible wastage. Therefore, JIT purchasing is frequently applied by organizations dealing in perishable goods. (5) PERPETUAL INVENTORY SYSTEM The Chartered Institute of Management Accountants, London, defines the perpetual inventory as a system of records maintained by the controlling department , which reflects the physical movements of stocks and their current balance. Bind cards and the stores ledger help the movements of the stock on the receipts and in maintaining this system as they make a record of to physical movements of the stock on the receipts and issues of the materials and also reflect the balance in the stores. Thus, it is a system of ascertaining balance after every receipt and issue of every materials through stock record to facilitate regular checking and to avoid closing down the firm for stocktaking. To ensure the accuracy of perpetual inventory records (i.e. Bind card and stores ledger) , physical verification of the stores is made by Bind cards and store ledger may differ from the actual balance of stock as ascertained by physical verification . It may be done to the following avoidable and unavoidable causes.
4. The inventory management principle of inventory postponement , 2003, p.350 Tarn et al. (2003) has described that when a consumer places an order, the order goes to the fulfillment operation, the distributor, the manufacturer, or a combination of the above (where) it is then picked, packed, handed to a shipper, and delivered to the customer (Tarn et al., 2003, p.350). The consumer who orders quickly expects delivery also quickly, but when the merchandise is not there, a consumer may not return, a lost sale has just been created and this places increased pressure on managing demand and planning up and down the supply chain (Tarn et al., 2003). This loss of sale can be attributed to the inventory management principle of inventory postponement. It concludes that by analysis it points to the order placed at right time at right place and to the right person. 5. Research done on decentralize inventory , 2004, p.466. Wanke and Zinn (2004, p.466) states that inventory management approaches are a function of product, operational and demand related variables such as delivery time, obsolescence, coefficient of variation of sales and inventory turnover and that logistics managers are more likely to decentralize inventory in order to stock product close to the customer's facility if the customers demand a reduced delivery time. It concludes that decentralization of inventory, facilitates the customer and reduction in the delivery time.
With this twin objective, Retention Price Scheme (RPS) for fertilizers came into picture. In this scheme Government has brought the fertilizer under the purview of Essential Commodities Act (ECA) in which the retail price of fertilizer to the farmer is notified by the Government of India from time to time. This retail price to the farmer is uniform throughout the country and is subject to local taxes applicable under the respective states. Further under ECA, the Government also operates a system of distribution control in which the manufacturers including the handling agents for the imported fertilizers are directed to sell specified quantities of fertilizers in given states/union territories. While doing so, the logistics of fertilizer distribution including storage, transportation, handling etc. are also suitably regulated conforming to overall supply plans of the Government to meet the requirement in all the parts of the country. Now manufacturers also should get reasonable rate of return as an incentive for producing fertilizers. Manufacturers should get at least that much, which can enable them to remain in the industry. Government of India fixes the price of fertilizers in such a way that manufacturers cost of production including cost of marketing is covered and the manufacturer gets a 12% post tax return on net worth of the unit at a pre-defined capacity utilization. Norms are fixed for consumption of raw material, utilities, services, capacity utilization, depreciation etc. The price so fixed is called Retention Price (RP). This price is reviewed every three years. In a nutshell fertilizers cannot be sold in open markets and producing unit has almost nil say in fixing fertilizer price. Then how to increase profits? By operating plants efficiently. The work of administering the Retention Price Scheme (RPS) is entrusted to Fertilizer Industry Co-ordination Committee (FICC) which works under the control of Department of Chemicals and Fertilizers.
The Indian government has devised policies conducive to the manufacture and consumption of fertilizers. Numerous committees have been formed by the Indian government to formulate and determine fertilizer policies. The dramatic development of the fertilizer industry and the rise in its production capacity has largely been attributed to the favorable policies. This has resulted in large scale investments in all three sectors viz. public, private and co-operative. At present there are 57 large scale fertilizer units. These manufacture an extensive range of phosphatic, nitrogenous and complex fertilizers. 29 of these 57 units are engaged in the manufacturing of urea, while 13 of them produce Calcium Ammonium Nitrate and Ammonium Sulphate. The remaining 20 fertilizer plants manufacture complex fertilizers and DAP. There are also a number of medium and small scale industries in operation, about 72 of them. The following table elucidates the installed capacity of each sector.
Sl. No 1 2 3
120.61
56.59
100.0
100.0
The Department of Fertilizers is responsible for the planning, promotion and development of the Fertilizer industry. It also takes into account the import and distribution of fertilizers and also the financial aspect. There are four main divisions of the department. These include Fertilizer Imports, Movement and Distribution, Finance and Accounts, Fertilizers Projects and Planning and Administration and Vigilance. It makes an assessment of the individual requirements of the states and union territories and then lays out an elaborate supply plan. Though the soil in India is rich in silt, it lacks chief plant nutrients like potassium, nitrogen and phosphate. The increase in the production of fertilizers and its consumption acts as a major contributor to overall agricultural development.
The Hazira Fertilizer complex was conceived in early 1978 under the overall national planning utilization of off-shore gas found in Bombay high in the west cost. The project was to be identical to the one already planned by the East while Fertilizer cooperation of India. (Now Rastriya Chemicals and Fertilizers Ltd ) in Maharashtra based on Bombay High . After studying various location for Raw Material, Marketing Infrastructure and Ecological aspects the Hazira site was selected for setting off giant Fertilizer project. As the project planned was too large for single operating organization like IFFCO. It was proposed to be executed in association with National Fertilizer Ltd. (NFL) as a joint Venture between co-operatives and public sector undertaking. In course of finalization of project ownership to entrust the total project to a new organization for execution and operation so as to avoid split responsibility of management with this in a view new co-operative society in the name and intend of KRISHAK BHARTI CO-OPERATIVE LIMITED (KRIBHCO) was organized by promoters, IFFCO, the government of India, and other state co-operatives. This new organization comes into existence for implementation and operation of this Hazira Fertilizer Complex in April, 1980. KRIBHCO has imbibed the management philosophy followed promoters IFFCO.
KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia & Biofertilizers at Hazira, in the State of Gujarat, on the bank of river Tapti, near Kawas village, 15 Kms from Surat city and 20 Kms from Surat Railway Station on Surat Hazira State Highway. Late Smt. Indira Gandhi, former Prime Minister of India laid the Foundation Stone on February 5, 1982.
M/s S.K.Mehta Chartered Accountant, 2682/2, beadon Pura, Ajmal Khan Market , Karol Bagh,New delhi-110005 M/s G.K.Choksi & Co. Chartered accounts, madhuban, Near Madalpur Underbridge, Ellisbridge, Ahmedabad-380006 Year of Establishment:- 17th April 1980 Form of organization :- CO-OPERATIVE Product Name:Urea,Ammonia, Liquid Argon gas, Bio-Fertilizers Production Process:- Totally Automatic Raw Material :Natural Gas , Water, Nitrogen Web-Site:www.kribhco.org
COMPANY PROFILE
Krishak Bharati Cooperative Ltd. (KRIBHCO) is a Multi-state Cooperative Society registered under the Multi-State Cooperative Societies (MSCS) Act, 2002 (39 of 2002) and is a fertilizer production unit in the Cooperative Sector and as per item 5 of Schedule II to Rule 3 of the Government of India (Allocation of Business) Rules is under the administrative responsibility of the Department of Fertilizers. KRIBHCO is primarily a fertilizer production cooperative having production unit at Hazira (Surat) in the state of Gujarat. The capacity of the plant is being revamped to produce additional 4.65 Lakh MT of Urea.The total Urea production capacity shall be 21.65 Lakh MT of Urea after revamp.
KRIBHCO had also entered into Logistics Business, Oman India Fertilizer Complex (OMIFCO), Diversification into Power Sector, Insurance Sector etc. OMIFCO is the first overseas JV project of the company in which KRIBHCO holds 25 % equity. Besides, KRIBHCO has also made realignment in its corporate strategy and internal operations revamping to meet the challenges in the liberalized/globalized economy. Illustration for this is turn-around of loss making Krishak Bharati Seva Kendra (KBSKs) and Seed Processing Units (SPUs) into profit centers. Marketing Division of the society, besides marketing about 18.00 Lakhs MT of urea produced annually at our plant in HAZIRA since commencement of production in 1986, is also handling and marketing about 10.00 Lakhs MT of Urea produced by OMIFCO ( KRIBHCO is one of the promoter of the company) annually since 2005-06. In 2006, KRIBHCO also acquired Sahajanpur Fertiliser Complex through its joint venture company KSFL (KRIBHCO holds 85% of the share in the JV), and about 10.00 Lakhs MT of urea produced annually by this plant is being marketed by KRIBHCO since 2006. At present KRIBHCO is marketing about 38.00 Lakhs MT of urea annually which is about 14% of the total urea consumption of the country. The marketing division of the society is fully geared up to market the likely additional quantities of about 5.00 Lakhs MT of urea from next year after revamp of our plant at HAZIRA. The operation of fertilizer industry particularly indigenous manufacturers changed significantly on implementation of NPS-stage III policy and implementation of NBS (from 01-04-2010). In Light of conducive and stable policy frame work, KRIBHCO is perusing import and marketing of other fertiliser material like DAP and MOP. The Society plans to import and market about 4.00 Lakhs MT of DAP during 2010-11. Society is planning to increase import of DAP and MOP to about 9.00 Lakhs MT annually in next 3 years. Keeping in view importance of the Quality Seeds in enhancing the agricultural production, KRIBHCO initiated Seed Multiplication Programme in the year 1990-91 to provide quality seeds of the crops and varieties of Public Hybrid (Public Varieties) to the farmers through KBSKs in the State of UP, Punjab and Haryana. Encouraging response of farmers towards KRIBHCO Seed
has prompted the Society to expand its activities in 6 States and have 14 production units. The Society stepped up production programme from 2926 Qtls. in 1991-92 to 2.29 lakh Qtls. in 200910. KRIBHCO has plan to almost double the certified seed production and marketing in next 3-5 years. To promote the organic agriculture in the country, Government has initiated several initiatives like promotion of use of bio-fertilisers, bio-compost etc. KRIBHCO has been promoting the use of bio-fertilisers since many years. The society has three units to manufacture bio-fertilizers at Hazira (Gujarat), Varanasi (Uttar Pradesh) and Lanjha (Maharashtra). All four popular biofertilisers i.e Rhizobium, Azotobactor, Azossprillium and Phosphate Soluable are produced and marketed by KRIBHCO. The Society has plans to sell around 1000 MT of bio-fertilizers during 2010-2011, which is likely to increase to about 1200 MT in next 3-5 years. Organic Agriculture has emerged as a feasible option to concern relating to land degradations. As per the GOI directives, all fertilizer suppliers are expected to promote the use of Bio-Compost by involving actively in the marketing of the product. KRIBHCO has sufficient human resources and credible brand image to market Bio-compost. This will also help the society to generate additional margins. During the year 2010-2011 we plans to market about 19,000 MT of biocompost which is expected to increase to about 50,000 MT in next 3 years. In a nut shell KRIBHCO, worlds premier fertilizer producing cooperative has an outstanding track record to its credit in all spheres of its activities. KRIBHCO has fully imbibed the cooperative philosophy and has made sustained efforts towards promoting the cause of modern agriculture and cooperatives in the country. Kribhco stands for commitment sincerity and high standards of excellence. In our endeavor towards achieving our goals we are impelled by the ideals set by our predecessors and the devotion and dedication of our employees.
VISION To become a world class organization that represents the farmer community and maximizes their returns through specialization in agricultural inputs, rural need based products and other diversified businesses that maximize stakeholders value. MISSION To act as a catalyst to agricultural and rural development by selecting, financing and managing projects that are both socially desirable and commercially profitable. OBJECTIVES 1. 2. 3. 4. 5. 6. To strengthen cooperative system To enhance the urea installed capacity and increasing its market share To ensure optimum utilization of existing plant and machinery To diversify into other core sectors like Power, Port, Infrastructure, Rural Retail, etc Transfer of technology for modern farming and improving farmers livelihood To educate and train farmers, provide free testing facilities for soil nutrients and irrigation water
PROGRESSIVE USE OF HINDI KRIBHCO is fully committed to the use of official language Hindi and the use Hindi in the organization is increasing consistently.
PRODUCT DESPATCH KRIBHCO UREA is transported from the plant by Railway Rakes & Trucks to 16 states, covering the Societys Marketing Zone. During 2000-2001 Rail, Road mix ratio of 87:13 respectively.
Diversification KRIBHCO diversified into bio-fertilizers in 1995 in order to provide supplementary Nutrients at low cost through its Hazria plant with a production capacity of 100 MT PA. The plant capacity was enhanced to 250 MT PA in DECEMBER 1998. The types of BIO-FERTILIZERS manufactured by KRIBHCO are Rhizobium, Azotobacter & PSM (Phosphate Solubilisig Microorganism) KRIBHCO is implementing two more bio-fertilizer plants of 300 MTPA capacity each.
PRODUCTION & SALES OF KRIBHCO BIO-FERTILIZERS (Qty. in MT) The following are the year wise details of Production and Sales of Bio-Fertilizer: PRODUCTION (MT) 389 296 603 560 775 738 953 865 953 965 944 SALES (MT) 373 351 516 611 714 784 957 867 922 939 1001
YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
2011-2012 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 YEAR 0 200 400 600 800 1000 1200 SALES PRODUCTION
BOARD OF DIRECTORS
CHAIRMAN Shri Vaghjibhai Rughnathbhai Patel
DIRECTORS Dr. Bijendra Singh Shri V. Sudhakar Chowdary Dr. Sunil Kumar Singh Smt. Shailajadevi D. Nikam Shri Pareshbhai R. Patel Shri Bhanwar Singh Shekhawat Shri S. C. Gupta Shri Ponnam Prabhakar Shri Bhikhajibhai Zaberbhai Patel
METHODOLOGY
The research design constitutes the blueprint for the collection, measurement and analysis of the data. Research Design is the plan and structure of investigation so conceived as to obtain answers to the research questions. Source: Cooper Donald R., Scindler Pamela S., business Research Methods, Tata McGraw-Hill Edition 2003, Eight Reprint 2005: 146
IMPORTANCE OF THE PROJECT STUDY The most important benefit of the project study is to understand the practical inventory control methods and techniques of the Inventory Management used in Kribhco.
This project is very important for inventory control from the scientific view. This project is also including scientific and practical Inventory Management techniques which used for better inventory management & better controlling of stock.
This project is very important because it is answered the following question which are concerned with the importance of the study.
How to supplement the Inventory control techniques in the organization for effective Inventory Management?
How to determining economic order quantity, re-ordering levels and classifications of items using appropriate basis for inventory control?
How to minimize idle time caused by storage of raw materials, stores or spare parts?
How to minimize and keep down Inventory carrying cost and obsoletes losses?
Thus, these entire questions are central issues of inventory control and also it is very important for study inventory management. Also, I learn a lot about industry inventory control from this project study.
7.1. TYPES OF RESEARCH DESIGN Type of research design is used in this research of inventory control techniques are descriptive as well as analytical. It follows a descriptive research design it is used to identify and classify the elements or characteristics of the subject. Quantitative techniques are used to collect analyze and summarize the data. In KRIBHCO , data and information is collected to analyze the inventory control techniques. Here , analytical research design is also used as descriptive approach is extended to suggest and explain the causes of changes in inventory and factors effecting inventory and inventory control techniques. 7.2. DATA COLLECTION TECHNIQUES Various data and information are collected to fulfill the research objective of the research . The data collected are both primary and secondary data.
Primary Data Data collection techniques used for collection of primary data is interviews conducted with executives and staff of finance and stores department.
Secondary Data Data collection techniques used for collection of secondary data are from stores record, annual reports, news reports, news articles journals, various websites and professional books as well as interview conducted with executives and staff of finance and stores department.
Secondary Data
Internal Sources Written file of Purchase Procedure and Store maintenance Procurement and contract procedure-Second version, Kribhco Financial Documents & other data Annual report of kribhco Reading in Material Management-by V. K. Khokha : HRD Center, Kribhco
External Sources Information From Web World o From Kribhcos web site o And Other web links Gathered information from INDIAN ASSOCIATION OF MATERIAL MANAMENT :Career Development Course Material Cooper Donald R., Scindler Pamela S., business Research Methods, Tata McGraw-Hill Edition 2003, Eight Reprint 2005: 146 Financial management, I M Pandey. (9th Edition)
LIMITATIONS:Project time duration is very short so when we are completely aware about all files & documents at that time only few days remain for complete project. Also we found problems in financial department about data collection.
we found complexity in store department about SRV (Store receipt voucher), SIV (Store issue voucher) etc. Also it was very difficult for us to understand overall purchase procedure in department
we are collected financial data of store & inventory are not sufficient for analyze the project properly. But from our limitation, we have to calculate only those data which we have got from the Kribhco, which is used in inventory control techniques.
To study the Inventory Management the several of interview techniques depending on the situations were followed. Discussions were carried out with various personnel of the company to study the following 3 broad areas.
A. PURCHASE CONTROL B. STORAGE CONTROL C. WAREHOUSE ACCOUNTING To study the above a relationship and link was sought between theory and practice. An evaluation was done to each stage and suggestions were also made to improve the existing Inventory control system.
PURCHASE CONTROL
PURCHASE DEPARTMENT. The prime responsibility of Purchase Department is to arrange supply of various raw materials, consumables, spare parts etc. to the plant for the production purpose and to the other departments for maintenance and operation purpose. The materials should be procure at the right prices from right source of supply.
Purchase Procedure
The following are some of the essential steps in this regard.
Registration of Vendors
The purchase department is responsible for developing a list of approved vendors for various types of materials, services. An advertisement is issued in all the leading newspapers inviting applications in the prescribed Performa for registration of suppliers and contracts listing out various types of purchases and services that are likely to be made during the next three to five years. The applications received is scrutinized by a Committee consisting of a representative from Technical, Finance and Purchase Department (nominated by the General Manager) and to ascertain the resources. Capacity and quality of workmanship of vendor. The Committee can also call the vendor and contractors for personal discussions and seek clarifications on the applications and obtain such other information as may be considered necessary by the Committee. The list of approved vendors and contractors should be updated at least every five years by issuing a press advertisement.
Requisition to Purchase/Work
The indenters from the various departments will raise a requisition called the Material Purchase Requisition for purchase in the prescribed Performa. It should be ensured that the requisition for purchase should be completed in all respects with regard to: A) Description of the material/equipment/scope of work. B) Material of construction/specification C) Temperature/Pressure/Standard if anywhere applicable. D) Quantity and unit of measurement. E) Date when delivery of material/services is required. F) Name of vendor in case of the item is of proprietary nature. G) Estimated value and budget head. H) Whether item is a stock item/non-stock item. The requisition for purchase of materials which have been declared as stock-item will be raised by the stores Department after the quantity in stock has reached the Re-order level as determined for the respective items. Such requisition amongst other particulars should also indicate the minimum, maximum and re-order level the date on which last supply was received and the average consumption per month since last purchase. The requisition for purchase of non-stock items will be invariably rooted through the Stores Department which will endorse on the requisition, the availability/non-availability. In case the item is available, the quantity there of be indicated on the purchase requisition so that the quantity to be purchased can be adjusted by the Materials Manager in consultation with the indenter. The requisition for purchase of capital items award of Civil Work, erection contracts, contracts for repairs to plant and machinery and equipment handling and transportation of materials, repair/servicing of equipment hiring of casual labours. Selection of contractors for repair/maintenance of township and plant buildings, mechanical, electrical, isolation, provision of other services and painting jobs on schedule of rate valid for one year will be sent directly to the Materials Manager after the same are approved by the competent authority. All requisitions for purchase of materials or for award of work as described above will be raised by the respective departments. The Department Manager would ensure that the purchase requisitions must indicate: A) The budget provision. (This will be checked by F&A) B) The amount utilized up to the previous requisition. C) The estimated value of the present requisition and D) The balance available under the budget head after booking the present requisition.
Enquiries/Invitation to Bid
On receipt of the requisitions from the various departments, enquiries are issued by the Purchase Department as per the procedure detailed below: A) Enquiries to be issued in the prescribed Performa. B) Enquiry document is suitably modified to conform to the material/services proposed to be procured. C) Enquiry document describes in detail the description of the material/services the technical specifications etc. D) The delivery time and the various general and special terms and conditions governing the purchase/work. The enquiry document stipulates that: i) KRIBHCO reserves the right to accept or reject any/all bids without assigning any reason. ii) KRIBHCO shall have the right to placed the order/award the work to one or more vendor/contractor. E) Enquiry floated for obtaining bids for a Civil work out for cleaning, handling, loading and transportation of materials or provision of services a draft of the contract proposed to be entered into is sent along with.
Estimated value of purchase Minimum No. of vendors to Minimum No. Of bids to be order/work order/contract whom enquiry to be issued obtained
1) Up to Rs.20,00,000/-
2) Exceeding Rs.20,00,000/-
The idea in prescribing the minimum number of vendors to whom enquiries to be issued and bids to be obtained is to create a healthy competition amongst the bidders, so that society is able to procure materials and services at the most economical price.
Open tenders are invited for selecting contractors for performing maintenance work, relating to civil, mechanical electrical and instrumentation work against a rate contract (SOR) which will be renewable every year. Press tenders for selecting such contractors will be advertised in one of local English and another in local language paper which has a good circulation: where fabrication oif equipment or major repairs to plant and machinery are involved, the enquiry floated to all the major fabrication/repair shops for determining the number and/or mode of enquiry to be issued the requisition is evaluated on the basis of last purchase order or the present estimated market value of the material/equipment which ever is more. Notwithstanding the forgoing, invitation of bids by press tender will not be necessary in respect of: 1) Purchase of proprietary items 2) Items, the prices of which are fixed by the Government. 3) Items, the import of purchase of which is canalized through a Government Department or public sector undertaking and 4) Items, standardised for particular brand/make. 5) However, all purchases of proprietary items and such other items the prices of which are fixed by the Government will require prior approval of the Managing Director/Executive Committee/Board of Director if the value of such purchase exceeds the delegated authority of the General Manager/Group Manager. For purchases exceeding Rs.20 lacks (Verification is pending) , one insertion may be given in the following news papers. 1) Times of India, Bombay/Ahmedabad/Delhi. 2) Indian Express, Ahmedabad (now also Baroda0 3) The Hindu, Madras 4) The Statesman, Calcutta
5) 6)
The competent authority, if he is satisfied may waive the advertisement of tenders for such purchases, the value of which does not exceed the power delegated to him for making purchases. The General Manager/Group Managers will obtain prior approval of E.D./Managing Director for waiving advertisement of tenders where the purchase exceeds his delegated authority. The General Manager/Group Managers may however waive advertisement of tenders in excess of their delegated authority of the purchase is required to be made to meet an emergency in the plant. In such cases post facto approval of the Managing Director may be obtained later. Normally, such waivers may be resorted to in the case of purchase of proprietary items or to cater to an emergency in the plant whenever the competent authority waives advertisement in the press for inviting bids, reasons are recorded in writing. A monthly report on such waivers is submitted to the Managing Director for his information by 15th of the following month. NIL report should also be submitted in case there was no waiver during the proceeding month. If the tender proposal to be advertised is for a work which involves design and engineering amongst other things. It would be preferable if the bids are invited in two parts viz. (a) Technical and commercial unpriced bid and (b) Priced bid. The date of opening the priced bid is fixed later than unpriced bid.
Validity of Bids
The bidders are advice to submit bids valid for 45 to 60 days. It is ensures by the Purchase Department that the orders are placed on the successful bidder within the validity period of the bid. If after opening of the bids, it is inevitable to charge the specification of material/work, the revised specifications are circulated to all the bidders who responded against the original enquiry and bids will be obtained a fresh from all the bidders. However occasions for
changing specifications and asking bidders to quote a fresh are rare and in all such cases prior approval of the General Manager/Group Manager must be obtained. The enquiry document stipulates that no bidder would be allowed to revise/alter his bid after opening of the bids and within the validity period. In case any bidder revises/alters his bid, the same shall be rejected even through the revise bid may conform to specification and be the lowest.
Opening of Bids
The bids received against the open tender are opened on the date and the time stipulated in the tender document as under: A) All advertised bids to be opened publicly. B) Bids not advertised (published) but where estimated value is more than Rs.5 lakh bids should also be opened publicly. C) For bids where value is less than Rs.5 lakh, public opening is not a must but if representative of some bidders, who wish to be present may be allowed.. All bids received are opened by the Purchase Department in the presence of the representatives from the Indenting Department and Finance Department. The bids opened are initiated and dated on all pages by all the persons who attend the bid opening. In case there is any cutting or alterations in the rates quoted or to the prescribed terms and conditions, the same will also be attested by all the persons attending the bid opening. A record is kept of the names of representative who attended the bids opening from Kribhcos side and the vendor representatives who attend the bid opening. All the persons including the bidders should sign against their name in token of having attended the bid opening. Bids opened are read out to the vendors who attend the bid opening. `Enquiry Response Sheet may also be filled giving details of tender enquiry Number, Date, Due date, Opening date, Number of bids received etc. And is signed by Kribhco representative. Where and priced bids have been invited in two parts, i.e. unpriced and priced bids, the unpriced bids is opened first. Any clarifications/additional information required by Tender Committee is sought in writing from the bidders. The bidders will have all option to revise the price in the commercial bid before the same is opened. In case any bidder wants to revise/alter the bid, he can do so and submit the changes in the price in a closed envelope before the due date. The commercial bid along with any revision is opened on the appointed day and time in the presence of bidders who wish to be present.
Single Tender
Where in response to enquiry only one bid is received and the purchase order is proposed to be finalised on a single tender, approval of the competent authority is obtained as per the delegation of powers, while according such approval the competent authority records the justification for making the purchase on single tenders.
Negotiation
Where the lowest acceptable bid received against the enquiry is considered high or where there is scope for reduction in price in the opinion of the Tender Committee (which may be recorded) and negotiations are considered necessary. The following course of action may be taken: Negotiation is conducted commencing with the technically acceptable lowest four bidders. In conducting negotiations the parties are called one after another starting with the lowest bidder. The original lowest bidder can be given second change to offer further reduction if the other bidders revises his price lower than the original bid of the lowest bidder. The scope of negotiation can be enlarged beyond the lowest four bidders in the following circumstances: 1) If the work to be awarded is intended to be split and awarded to more than one contractor.
2) If a ring is suspected and the negotiation with the initial four lowest bidders do not yield satisfactory results. 3) If higher bids are in very close proximity of the two lowest bids and any change in quantities can change the rating of the bidders. If a single bid is received against the open enquiry. The same can be accepted if the rates are considered reasonable. Otherwise, negotiations are held with the bidder and a decision taken either to accept the single bid or to resort to re-tender. If a single bid is received against a limited enquiry normally it is rejected and retendering resorted to. However, the competent authority, if he is satisfied that it would be in the interest of Kribhco, to accept the single bid received. He may do so and record reason in writing..
Such bid is accepted on the recommendations of the Tender Committee and concurrence of the Finance Department.
Guarantors
The Purchase Department obtains from the vendors/contractors Bank guarantees in the proforma prescribed. A) B) C) Advance payment Performance Bond Free issue materials
The Bank Guarantee in respect of free issue materials may be waived by the competent authority in such cases where he is satisfied that the material issued to the vendor contractor will not be moved out of the factorys/housing colonys secured work site.
Repeat Orders
Repeat orders without calling for fresh bids may be placed against previous orders within one year from the date of issue of original order. No repeat order shall however, be placed against a purchase order which was placed at higher prices in the interest of early delivery. The quantity and value of the repeat order should not exceed the quantity and value stipulated in the original order and should not be resorted to more than once in any case. While placing the repeat order, it should be ensured that there has been no down-ward trend in prices since the original order was placed. Repeat orders shall be placed with the concurrence of the finance department and approval of the competent authority. The authority competent to approve repeat orders will be the same which approved the original order.
Inspection of Material
The Purchase Department shall Co-ordinate with other departments and arrange inspection of materials at vendors shops prior to despatch wherever stipulated in the purchase order. Inspection of materials in other cases shall be carried out on receipt of materials at plant site/stores only those materials cleared by the inspection as conforming to purchase order specifications will only be taken on charge in stores. The person inspecting the material will sign on the `Stores Receipt Voucher in taken of having inspected and accepted the material.
Damaged/Short/Rejected Materials
The Stores Department shall be responsible for sending suitable intimations to the: 1) Vendor for materials rejected if the same do not conform to the specifications mentioned in the purchase order. 2) Vendor and Insurance Company for material received short or damaged.
Where the delivery offered by the vendor was ex-works the intimation for damaged/short receipt of materials will be sent only to the Insurance Company. The intimation to vendor and the Insurance company for material received short or damaged or rejected should sent as early as possible after the material is inspected but in any case not later then a week from the date of their receipt at plant/site. A copy of the intimation issued by the Store Department will be endorsed to: 1) Finance and Accounts Departments for lodging the Insurance claim or making suitable recovery from the vendor. 2) Purchase Department for following up, the replacement supplies or obtaining the nondelivered quantity.
The Purchase Department shall be responsible for following up with the vendor, the replacement of materials rejected or short supplied by him. The Purchase Department shall evolve a suitable system so that suitable communication is issued to the vendor until the replacement supply is received or quantity short delivered is made good by him.
Insurance Claim
The Accounts Department on receipt of a copy of the letter issued by Stores Department make and entry in a register maintained for the purpose and shall lodge suitable insurance claims. The Accounts Department shall co-ordinate with other departments wherever necessary and collects the details of materials and other costs as may be required for preferring a claim.
Cash Purchase
Cash purchases or materials should be avoided as far as possible. Cash purchases should be resorted to only meet the plants emergencies or where it would not be economical to call for quotations owing to the small value of purchases. The General Manager/Group Manager may, however, consider keeping a suitable amount not exceeding Rs.2000/- as Imperest fund with the Purchase Department, Maintenance Department and Administration Department to enable them to make cash purchase of items to meet the urgent day-to-day needs of the plant.
Bank Guarantees
The Finance and Accounts Department is responsible for safe custody of Bank Guarantees received from vendors/contractors. The Finance and Accounts Department maintains a separate register for keeping records in the proforma enclosed for Bank Guarantee obtained against: A) Advance payment B) Performance guarantee C) Free issue of materials The Bank Guarantee register is reviewed every month to ensure that all the guarantees obtained are valid. Such of the bank guarantees which are found to be maturing /expiring will be reviewed with the respective department to ascertain if any further revalidation would be required to conform to the dates of completion of work/delivery of material.
Normally the validity of Bank Guarantee should be as under: a) Bank Guarantee for: From the date of payment until the advance is liquidated. b) Performance guarantee: From the date of payment of advance or commencement of work whichever is earlier until expiry of maintenance period. c) Free issued material: From the date of issue of material until settlement of quantitative account of material issued or delivery of fabricated equipment whichever is later. The Finance and Accounts Department is responsible for issuing instructions to the vendor/contractor for obtaining the extension of the existing Bank Guarantees before expiry of the claim period. A suitable system should be introduced by the Finance and Accounts Department to ensure that a regular follow-up is done with the respective vendors/contractors until the extension to Bank Guarantees are received. Finance and Accounts Department also ensures that until extension to bank guarantees are received from vendors/contractors on equipment amount is with held from running/final payment due to the vendors/contractors. The Bank Guarantee shall discharged in consultation with the respective department after receiving the conformable from them that the maintenance period under the purchase order/work contract has been completed and that there is no claim against a vendor/contractor. The Bank Guarantee for advance payment can be discharged by the Finance and Accounts Department after ensuring that the advance paid have been liquidated/recovered from running final payment where the vendor/contractor does not communication issued for extending the validity of the bank Finance and Accounts Department will invoke the bank guarantee before expiry of the claim period after consulting the respective department and obtaining the approval of the General Manager/Group Manager.
Right time
Right Quantity
Right Quality
Right Price
Right Sources
Supply
The existing purchase procedure gives fair chances of competition to all the vendors. It leaves no room for malpractices or favoritism of employees i.e. nobody oblige any one out of way. It is not very rigid. In time of urgency of requirement, necessary deviations are approved by competent authority so as to avoid stoppage of work. The procedure is based on democratic way of working. Good suggestions to improve efficiency are always considered. Various annual rate contract running contracts are entered for regular consumable items, like oil and lubricants, stationery, chemicals, medicines, printing job etc. This is reducing the repetitive job times and money of company. But there are shortcomings also, which are evaluated taking into consideration the five essentials of purchase functions are as follows:
Purchase time, Purchase quantity, Purchase quality, Purchase price and Source of supply
PURCHASE TIME The purchase time indicates the lead-time i.e. time taken to physically receive the material from the date of its indent. To find out the lead time five cases different items have been studied randomly, and analyzed its fact which indicates that by following the existing procedure, the administrative lead time is long 6 to7 months (in some cases only), while suppliers lead time is also about 2 to 3 months. SUGGESTIONS: Contract system should be followed to purchase stock items with approved vendors so that the continuity of supply can be maintained without following such long procedure and waste of time. It this case the economic order quantity should determined for each item and a list of order per year with specific time limit should be given to contractors in advance, fixing the maximum, minimum Inventory levels For non-stock items, the limits for issuing inquiry should be fixed maximum to seven days. Similarly time limit for recommendations and concurrence by technical department and finance department also be fixed. In case of delay beyond this time limit, competent authority should be informed for necessary instruction.
PURCHASE QUANTITY AND QUALITY: It has been observed that the quantity of material is being purchased considering 6 to 12 months consumption that means no economic order quantity has been fixed for different types of material. Due to the existing system: Company is incurring cost of carrying Inventory interest of capital rent etc. Company is also incurring loses due to the depreciation in quantity, detoriation in quality and obsolesce of materials during storage.
Company is also incurring avoidable expenditure such as holding up keep of surplus material, financial losses due to fall in the price of materials, extra expenditure on excess of materials required. It is suggested that before taking final decision economic order quantity should be determined for each item and order should be placed accordingly. The determination of economic order quantity techniques has been discussed on succeeding pages. PURCHASE PRICE The price of each item is being compared with suppliers quotations considering the quality of material to be supplied. Although, purchase department should keep itself informed of the price trends, with the help of market reports, trade papers and journals, report by purchase against and sales representative of the suppliers, published catalogue and price list. SOURCE OF SUPPLY The selection of a particular supplier is made after inviting tenders from possible source of supply. There are four types of tenders commonly used, which are Single tender, Limited tender, Open tender and Global tender The tender received are opened on the date and time stipulated and compared to select a final vendors, considering quality, delivery after sales services etc. which indicates that right source is selected, only thing taken in to consideration is to maintain cordial relations with suppliers.
STORAGE CONTROL
Meaning of Store: Place for all & all are at their places Here in above sentence all is mean as Material-Inventory-Stock
Store Department
In a manufacturing unit or in any organisation, stores are constructed according to the needs of the organisation and materials to be stored in the stores.
MATERIAL
PURCHASE
STORES
1 RECEIPT SECTION
2 CUSTODY SECTION
3 DISPOSAL SECTION
1. Receipt Section
Receipt store usually function as part of the stores and it is manned depending upon size of the industry and complexity of the materials to be handled.
Receipt Procedures All incoming goods must be received in receipt section and after making necessary documentation and paper work goods should be delivered for its custody or other destination. During that period same shall be identified and kept in separate specified place to prevent any misplacement/pilferge or mix up. Verification of Quantity Packed materials are opened and verified with challan or bills accompanied with the lost and the same is matched with P.O. and also P.O is progressed simultaneously. Daily Receipt Report A report indicating `SRV reference of all the individual consignments on daily basis are being circulated to the purchase section/indentor/user for management information of its arrival and arranging inspection of the same thereof. Inspection and Discrepancy Report In order to ensure quality for all the incoming material with the help of skill, personnels, material is offered for inspection. The normal methods used are by visual, by touch, by smell, by comparison, by actual testing, Laboratory methods - ISI test etc. This is to determine the acceptability of the article received. Item rejected in inspection and observation regarding any deviation in quantity/condition is recorded separately in a register called MATERIALS EXCEPTION REGISTER, all these informations also simultaneously sent to the purchase indentor and the supplier through a report. It is called MATERIAL EXCEPTION REPORT. The custody of rejected items remains with receipt section till it is disposed of as per the instruction of purchaser, indnetor and looking to its status of payment respectively. The action for disposal may be one out of the details as under: a) Items to be returned to the supplier/Insurance company. b) Items accepted later with some deviation and or reduction in price with or without rectification. c) Item is scraped and or destroyed. Claim for Loss/damage to the Material in Transit The losses are liable for recovery either from the insurance company or from the vendor or from the carrier and to materialize of the same claim is lodged on the carrier/vendor, whosoever handled/brought or dispatched the material with the supporting documents. In our case Open Marine Policy theyre with insurance company. All incoming materials consigned to KRIBHCO is covered under the policy and claim may be lodged on the merit i.e. as per terms and conditions stipulated in the purchase order. The claim is then followed up till recovery of the loss is made from the defaulter. Centralized Claim Register is maintained for the purpose.
Legal Action Whenever Kribhcos claims are pending i.e. on the event of carrier/vendor not settling the claim under stipulated or reasonable time period, a suit against them may be filed in consultation with legal advisor and with the managements consent. The functioning of these departments is briefly explained as under:
2. Custody Section
After the material is accepted it is sent to the custody section where the material is again check for the quantity according to the P.O. and for the condition. Here the material is handled and preserved at proper and definite locations as decided.Thus the main function of custody section is physical checking. Location and preservation of material received from the receipt section. The material preserved here is issued to the user department through SIV (Store Issue Voucher). Here MPR (Material Purchase Requisition) is prepared only for stock items which is then sent to the Purchase Department through Stores Department for the stock items MPR is made keeping the Re-order level while proceeding. The level maintained for stock-item in store is as under: Minimum Level 2 where RoL RoQ RoL 5 Re-order level Re-order quantity RoQ 10
Lead Time
In all organization there is a time gap between the demand (identing) and the fulfillment i.e. supply of materials. This finite time interval between the cycle of identing and actual procurement of material is called lead time or lead period. Lead-time has direct impact on inventory levels. Longer the lead times higher the inventories.
Safety Stock
If the lead-time and the consumption during the lead time are known with certainty. There would be no need of providing any buffer stock or safety stock. In practice, however, there are variations in both lead-time as well as lead time consumption and hence it is usual to provide for buffer stock. The safety stock is calculated based on an analysis of the variation in Lead-time consumption.
Stores is like a bank which holds materials which are valuable assets and it should, therefore, be planned properly. Its location should be decided at the time of original plant layout. Raw materials, packing materials, imported components, etc. exclusively required by the plant are to be stored in the vicinity.
3. Disposal Section
The word meaning of disposal is, disposing of, getting rid of, sell etc. Etc. In our daily life, we are disposing of household goods for various reasons and well aware of the terminology. In industry, the disposal is of mainly following types: Surplus Scrap/waste
Surplus
Surplus is usually defined as excess of firms operational requirements. The industrial surpluses are due to mistakes in over procurement. Wasteful production process and inefficiency in general. The surpluses also result from the inefficient use of production machinery, carelessness and poor purchasing. The least costly method of controlling surplus is its elimination at the source. This is why effective value analysis programmes which eliminate surpluses before they occur are so profitable. Identifications The identification of surplus stocks can be done by making age and consumption analysis. This is a simple statement showing of stock held and issues made during the last few years i.e. 3 to 5 years if no issue has been made at all of the items for the past say 3 years, it is a case non-moving items. If 2000 pieces are in stock, and in last five years only 6, 14, 30, 35 Nos. Have been issued it will reveal a case of surplus stocking or slow moving. Such an analysis will throw up cases of slow moving and non-moving items from which surplus and obsolete stocks can be identified/codified from such analysis one can also know the time from which the material has been in storage. It will also be desirable to find out what recent changes which have taken place in production or operation and what charges are imminent from this information it can be determined what major items, spares are likely to become obsolete and surplus. These can also be considered while reviewing alongwith slow moving and non-moving items. After sorting of items, find list should be made showing particulars of all items to be disposed off and finally written off. In public sector organizations a Committee consisting of representative each from technical, finance, stores, purchase is set up to make final list which is approved by chief executive or a senior member of the management. The following information usually appears: * Code Number of each item
* * * * * * *
Description Quantity in stock Quantity to be retained Quantity to be disposed off Original book value of quantity in stock Recommended Book value of Quantity to be retained Recommended Book value of Quantity to be disposed off, amount to be written off.
Scrap/Waste
This terms applies to unusable material whose value is only in terms of its materials content, be it metal, paper or cloth. The scrap industry is a very big industry in India. Merely because all scrap can be re-cycled to produce materials of utility and greater value. Waste papers are used to produce cardboards and other packing paper. Steel scrap is melted and re-rolled. Waste oil are purified and converted to engine oil with original specifications. It is impossible to eliminate scrap/waste from industry but can be minimized by intelligent planning and controls. When material has been declared surplus and reserve price fixed. Usually the following methods of disposal are followed: Circulation within the company Return to suppliers Selling to other firms Selling to dealers and bookers Selling to employees Selling by auction Disposal through presses tender Disposal through limited tender inquiry.
INSPECTION In exercising control on the quality of incoming materials inspection plays an important role. Materials purchased in India and abroad are inspected according specifications, prescribed tests, drawings, approved samples etc as stipulated in the purchase order. To inspect different types of materials following inspection methods are used. Inspection by third party : Such agencies are EIL cloyed register, IBR; etc. acceptance of material is based on the certificates and reports of these agencies. Inspection by indenting departments : At vendors premises during manufacture of materials or before dispatch of the same the concerned officers of indenters carry out such inspection. Materials test certificates : The material may be inspected and accepted based on the manufactures test certificates. Materials are inspected and accepted by carrying out chemical, electrical or mechanical test either of the project site or through the recognized lab as stipulated in the purchase order. Some materials like shop, cotton, waste, phenol etc are accepted by visual inspection. Proprietary nature of materials are accepted by either visual inspection or carrying necessary tests whenever required. Materials are also accepted after ascertaining the quality as per samples on stipulated in the order.
ISSUE SYSTEM: The issue system relates to function of issue card and Inventory control section of stores. It covers all material stocked by the KRIBHCO stores and all bulk and raw materials directly stored by the users. It begins with the preparation of issue voucher and ends with their submission to accounts departments. GENERAL AUTHORITY AND RESPONSIBILITY: The authority for receipt and storage of all the materials is centralized in the store department accepts medicines and stationary. Issue will be made only on receipt or presentation of authorized requisition.
Stores department is responsible to provide material (through stores issue voucher) to the authorized requisition on demand, all material declared as stock items and contained in the store catalogue as the desired and the quantities requested for immediate use by them. QUANTITY OF ISSUE: In respect of consumable stores and such other materials as are required frequent or at odd hours, the issue is made in large quantities to reduce electrical work and to ensure ready availability of materials at sight place when required. The quantity issued is for 15 days consumption. The entire issued quantity is charred in full to the requisition cost center though all of its not actually used or consumed immediately. In case an item stocked as a set it is issued as a set not in parts. PERPETUAL INVENTORY SYSTEM: KRIBHCO has the following perpetual Inventory system, which comprises: Cardex system Stores ledger and Physical stock verification
Because of Computerization (MIS) Cardex & Stores Ledger systems are not used now. CARDEX SYSTEM To maintain the quantitative records of receipt and issues and closing balances of items of stock a cardex system is followed. Stores department is doing all the quantitative accounting of materials. STORES LEDGER For the all quantitative accounting of materials stores department is responsible. Where as for monitory accounts of materials accounts department is responsible. One set of each document for receipt issue and return of materials is sent to priced store ledger section in the accounts department. Based on these documents priced stores ledgers are prepared for each item of the stores. The price store ledger provides the volume of each receipt issue and return along with the quantity accounts.
PHYSICAL VERIFICATION OF STOCK The physical verification of stock is contemplated with a view to ensuring that stores and materials held in stock tally with the quantity and specification shown in the cardex. The actual balances agree with the balances recorded in the cardex and discrepancies noticed if any are investigated and adjusted for accounting purpose. It has been observed that time gap of verification is six months, which should be reduced to be three months for non-stock items, and for stock items verification should be done at the time of placing orders. So that the determine Inventory level can be maintained even of spoilage, damages and obsolescence takes place.
ANALYSIS PART- 2
1. ABC ANALYSIS
ABC CLASSIFICATION:
ABC classification is a basic analytical Management tools which enables top Management to direct their effort where the result will be maximum. This technique properly knocks as ALWAYS BETTER CONTROL has universal application in many areas of human endeavor. The technique tries to analyze the distribution of any characteristic by money value of importance in orders to determine its priority. In materials Management, this technique has been applied in areas needing selective control. Such as Inventory critically of items, obsolence. Stock purchases order, receipt of materials, inspection, storekeeper and billing verification. ADVANTAGES OF ABC CLASSIFICATION:This approach helps the material manager to exercise selective control and focus his attention only on a few items. When he is dealing with various store items. ABC analysis has to be reported to equal extension to A, B and C items will not worth while and would be very expensive. Concentrating on all items it is likely to have diffused effect irrespective of the priorities. It provides a sound basis on which to allocate funds and time of personnel with respect to their importance of the individual items. TECHNIQUES OF ABC CLASSIFICATION:The techniques of classifying the items into A, B and C categories as described in the following steps: Classify the items of inventories, determining the expected use in units and the price per unit for each item. Determining the total value of each item using multiplication of the expected unit by its unit price. Rank the items in accordance with the total value, giving first rank to the item with highest total value and so on. Compute the ratios (percentage) of number of units of each item to total units of all items and the ratio to total of each item to total value of all items. Combine items on the basis of their relative value to form three categories A, B and C.
PURPOSE OF ABC CLASSIFICATION The object of carrying out ABC classification is to develop policy guidelines for selective control.
Normally, once A.B.C. classifications have been done the following broad policy guidelines can be established in respect of each category. EXHIBIT 1.1
Sr.No. 1. 2. 3.
A-ITEMS Very strict control No safety stock Frequent ordering weekly deliveries
C-ITEMS Low control High safety stock Bulk ordering once in six months Quarterly control reports Follow up and expediting exceptional cases Minimum value analysis
4. 5.
Monthly reports
Maximum follow up and Periodic follow up expediting Strict value analysis As many sources possible for each item Accounts forecast material planning Moderate value analysis
6. 7.
as Two or more reliable Two reliable sources for sources each items in Estimate based on past Rough estimate for planning data on present plan
8.
9.
Minimization of waste Quarterly control over Annual reviews over surplus obsolete and surplus and obsolete and obsolete items surplus(review every 15 items days) Individual posting Central storage purchasing Small group posting and Combination purchasing Group posting Decentralized purchasing
10. 11.
12.
Maximum efforts to reduce Moderate lead time Must be handled by senior Can be handled officers middle Management
13.
SUGGESTED SYSTEM:
The scientific method of ABC classification has been used in this study about which a brief introduction has been given in the previous pages. (Exhibit 1.1)
The main task here was to determine the demarcation line between A.B.& C items. For this purpose first of all items were arranged by rupee annual consumption in descending sequence, starting at the top of the list running total of item by item rupee consumption value was computed, and finally the cumulative percentage for the item count and cumulate annual usage value were computed. All A, B, C types of item were listed out.
The sample of 29 items (material group wise) have been taken for the A.B.C classifications
SR. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24 25. 26. 27. 28 29.
MATERIAL GROUP No 10 11 27 35 29 42 09 15 20 37 92 01 07 92 25 13 04 24 49 02 31 21 38 19 05 12 25 14 30
DESCRIPTIONS Abrasives Tools and Ndt Instruments General Fire Fighting and Safety Catalyst/Chemicals/Resins Stationary/Furniture Welding electrodes and spares Pipe and pipe fittings I.B.R Flanges non-I.B.R. Civil constructions Mobile equipments and Rollin Bearings Gasket/packing/o-ring Mobile equipments & Rollin Cable Metals(ferrous0 Fasteners Electrical/General Misc.items 49 group CP/NG/oil mech-seal,Ve-belt Paints/oil/lube/gas Valves non I.B.R Bags/bagging & containers/cot Pipe & pipe fittings Hardware(others fasteners) Elastomer/Plastic Cable(powers & control) Metals (non ferrous) Lab equipments
VALUES CONSUMPTION 51000 25700 2000 63000 1042000 1542000 478000 35000 5000 198000 202000 4189000 3143998 63000 286000 4682000 366000 1835000 928000 179000 1008000 457000 357000 839000 29000 357000 33000 301000 101000 23028998
Main Item 13 01 07 24 42 29 31 49 19 09 21 04 38 12 14 25 11 92 37 02 30 35 92 10 15 25 05 20 27
% of total 3.32 21.30 20.91 11.24 - 65.09 4.95 2.53 0.84 2.30 5.00 1.74 0.63 7.93 - 20.29 0.06 0.56 2.08 0.39 2.53 0.28 2.19 4.50 1.69 0.11 - 14.61 0.84 0.62 0.06 0.62 0.50 0.22 0.06
Cumulative
65.09
85.38
2595.74 357000.00 35700.00 8135.13 40857.14 5711.11 40400.00 5076.92 2237.50 3366.67
99.99 (100)
Total cost consumption(Rs) 4682000 4189000 3143000 1542000 1042000 1008000 928000 839000 478000 457000 366000 357000 357000 301000 286000 257000 202000 198000 179000 101000 63000 63000 51000 35000 33000 29000 5000 2000
% of Total 20.33 18.19 7.97 6.69 4.52 4.38 4.03 3.64 2.07 1.98 1.59 1.55 1.55 1.31 1.24 1.11 0.88 0.86 0.78 0.44 0.27 0.27 0.22 0.15 0.14 0.13 0.02 0.01 6.52-C 17.72-B 75.73-A
Cumulative
75.73
93.45
99.97(100)
The tabular & graphic presentations indicate that item forms a minimum, preparation 65.09 percent of total units of all items. But represent the higher value 75.73 %. On the other hand, item C represents 14.61 percent of the total units and only 6.52 % of the total value item B occupies 20.29% of the total units and 17.72% of the total value. Items A and B jointly represent 85.38% of the total units and 93.45% of the investment. Item C represents merely 6.52% of the investment. Thus a tightest control should be exercised on item A in order in maximum profitability on its investment. In case of item B Medium control and in case of item C simple controls will be sufficient.
2. VED ANALYSIS
VED ( vital, essential desirable) CLASSIFICATION
The VED classification is applicable largely to spare parts. Stocking of spare parts will be based on strategies different from those for raw materials, because their consumption pattern is different, while the consumption of raw materials depends directly on the market demand on production the demand for spare parts depends on the performance of the plant and machinery. Therefore, the method of classification designed for one type of Inventory will not be compatible for selective control of another type of Inventory to over come this draw back the VED classification is used.
Spares are classified as vital, essential desirable. This implies that V classes of spares have to be stocked adequately to ensure the operation of the pant, because by definition the non-availability of vital spares can cause havoc and stop the wheels of the organization. Some risk can be taken in the case of E class of spares. Stocking of desirable spares can be even done if the lead-time for their procurement is law. It is essential that this classification be done by technical department or by those in charge of the maintenance of the plant. This classification will be very useful to KRIBHCO if it is implemented. Moreover, ABC and VED classification can be a combined advantage, in order to control the stocking of spare parts. The control action for the class AV, BE, CD, etc are given in exhibit No. 2.1 EXHIBIT NO
CLASSES
A Items B Items C Items
V ITEM
E ITEM
Constant control & Moderate stock regular follow up Moderate stock Moderate stock High Stocks Moderate stock
3. EOQ ANALYSIS a) EOQ OF HEAVY FUEL OIL Annual Consumption Cost per unit Carrying cost Ordering cost per order EOQ 29087 KL Rs 20.14 Rs 0.14 Rs 3500 1205.96
Units ordered Carrying (in KL) cost (in Rs) [Qc/2] 500 35000 600 42000 700 49000 800 56000 900 63000 1000 70000 1100 77000 1200 84000 1300 91000 1400 98000 1500 105000
INTERPRETATION:
Ordering cost (in Rs) [Ao/Q] 203609 169674.16 145435 127255.625 113116.1111 101804.5 925449.54545 84837.08333 78311.15385 72717.5 67869.66667
Total cost (in Rs) [TC=Qc/2+Ao/Q] 586050789 586023854.2 586006615 585995435.6 585988296.2 585983984.5 585981729.5 585981017.1 58591491.2 585982897.5 585985049.7
Economic order quantity of heavy fuel oil is calculated to be 1205.96 KL. If we vary the quantity to be ordered the total cost of inventory is greater than total cost of inventory if economic order quantity is ordered i.e. Rs 585981017.1
b)
Units orderd (in Carrying cost Ordering cost MT) (in Rs) (in Rs) 1100 236500 448534.5455 1200 258000 411156.6667 1300 279500 379529.2308 1400 301000 352420 1500 322500 328925.3333 1600 344000 308367.5 1700 365500 290228.2353 1800 387000 274104.4444 1900 408500 259677.8947 INTERPRETATION:
Total cost (in Rs) 2040491995 2040476117 2040465989 2040460380 2040458385 2040459328 2040462688 2040468064 2040475138
The economic order quantity of urea is calculated to be 1514.87 MT. The total cost of inventory at economic order quantity is calculated to be Rs 2040458385 which is much less compared to total cost calculated at different order quantity.
c)
EOQ OF BIO-FERTILIZER (HARD) Annual consumption 4258.436 Mt Cost per unit Rs 17.53 Carrying cost per unit Rs 1.42 Ordering cost per order Rs 3500 EOQ 144.89 MT Ordering cost (in Rs) 149045.26 135495.6909 124204.3833 114650.2 106460.9 99363.50667 93153.2875 87673.68235 82802.92222 78444.87368 74522.63 Total cost (in Rs) 74870428.34 74863978.77 74859787.46 74857333.28 74856243.98 74856246.59 74857136.37 74858756.76 74860986 748637227.95 74866905.71
Units ordered Carrying (in MT) cost (in Rs) 100 71000 110 78100 120 85200 130 92300 140 99400 150 106500 160 113600 170 120700 180 127800 190 134900 200 142000
INTERPRETATION:-
The total cost of inventory at economic order quantity is calculated to be Rs 74856243.98 which is much less compared to total cost calculated at different order quantity.
EOQ OF BIO-FERTILIZER (LIQUID) 31237.564 KL Annual Consumption Rs 21.11 Cost per unit Rs 0.06 Carrying cost Rs 3500 Ordering cost per order 1909.026 KL EOQ Units ordered (in KL) 1500 1600 1700 1800 1900 2000 2100 2200 2300 2400 2500 Carrying cost(in Rs) 45000 48000 51000 54000 57000 60000 63000 66000 69000 72000 75000 Ordering cost (in Rs) 72887.64933 68332.17125 64312.63176 60739.70778 57542.88105 54665.737 52062.60667 49696.12455 47535.42348 45554.78083 43732.5896 Total cost (in Rs) 659542863.7 659541308.2 659540288.7 659539715.7 659539518.9 659539641.8 659540038.6 659540672.2 659541511.5 659542530.8 659543708.6
d)
INTERPRETATION:The economic order quantity of Bio- Fertilizer is calculated to be 1909.026 KL The total cost of inventory at economic order quantity is calculated to be Rs 659539518.9 which is less compared to total cost calculated at different order quantity.
e)
Annual Consumption Cost per unit Carrying cost Ordering cost per order EOQ
Units ordered MT) 140 141 142 143 144 145 146 147 148
Carrying cost Ordered cost Total cost (in (in (in Rs) (in Rs) Rs) 135800 136770 137740 138710 139680 140650 141620 142590 143560 149452.5 148392.5532 147347.5352 146317.1329 145301.0471 144298.9655 143310.6164 142335.7143 141373.9865 367519935.5 367519845.6 367519770.5 367519710.1 367519664 367519632 36751913.6 367519608.7 367519617
149 150
144530 145500
INTERPRETATION:-
The economic order quantity of Bio-Fertilizer (hard) is calculated to be 144.89 MT. The total cost of inventory at economic order quantity is calculated to be Rs. 74856243.98 which is much less compared to total cost calculated at different order quantity. C) RATIO ANALYSIS
A trade of between the level of Inventory and the cost involved is a must for a better performance of the Inventory need, so the stock held should neither be too large nor to little. The cost of inventory itself plus the cost for carrying it are factors to be considered to check the excessive stock.. The ratio considered are enough for evaluation of inventory Management. There are many other ratios, which can be used but due to the lack of data are not used for evaluation.
CURRENT RATIO
2009 = 18551
2010 = 127171
2011 = 122402
2012 = 190466
23876 = 5.33:1
75371 = 1.62:1
132415 = 1.44:1
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm. The current ratio in the year 2010 is very highest which is 5.33% & it is very lowest in the year 2009 which is 0.62%. In the year 2009, the cash and bank balance is reduced because that is used for payment of dividends. From 2010 onwards the value is decreasing upto 2012. It means current liabilities is increasing so the position of the company is not satisfactory.
= 0.52 : 1
= 0.04 : 1
= 1.35 : 1
= 1.26 : 1
INTERPRETATION:-
Quick assets are those assets which can be converted into cash with in a short period of time, say to six months. So, here the sundry debtors which are with the long period does not include in the quick assets. In the year 2009, the company having the 0.52% assets to convert into cash, comparing the year 2010, the value is very low so the company having very less assets to convert into cash. In 2011 the value 1.35% is very high so this year the company having more assets to quickly convert into cash.
INTERPRETATION:-
The difference between current assets and current liabilities excluding short term bank borrowing is called net working capital (NWC) In the year 2010, the net working capital is high and in the next year the bar goes in lower direction. And in the next year 2012 the bar goes in upward direction. Therefore, the value is in fluctuating manner so their utility becomes more doubtful for firms with seasonal business.
INTERPRETATION:-
The inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover ratio indicates brisk sales. In year 2009 the ratio is 31.9 , it means sales are quick in 2009 , such a position would not arise unless the stocks consist of unsaleable items. A low inventory turnover ratio recorded in year 2012 is 8.99 , it results in the blocking of funds in inventory , which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorating in quality. From 2009 onwards the value is going in decreasing , so it indicates the firm facing heavy loss due to inventory year after year.
360
Inventory turnover
2009 = 360 31.9 = 11 days 2010 = 360 13.9 = 26 days 2011 = 360 9.8 = 37 days 2012 = 360 8.99 = 40 days
INTERPRETATION:In year 2009, the company holds 11 days of inventory and 26 days in 2010. The company holds 37 days to finish the raw materials in 2011 and in 2012 the company holds 40 days of inventory. Kribhcos efficiency in turning its inventories is continuously deteriorating. The companys utilization of inventories in generating sales is poor, the yearly holding of all types of inventories is increasing.
INTERPRETATION:The net profit ratio is the overall measure of the firms ability to turn each rupee of income from services in net profit. If the net margin is inadequate the firm will fail to achieve return on shareholders funds. High net profit ratio will help the firm service in the fall of income from services, rise in cost of production or declining demand. For comparing year 2009, it is very high value 26.7 % among all four years. Every next year the net profit is going in decreasing order. So the position of the company is average. Continuous decreasing in the above ratio year after year is a definite indication of improving
[10] FINDINGS
1. The current ratio has shown in a fluctuating trend as 0.62, 5.62, 1.62 and 1.44 during 2009 to 2012 of which there is little fluctuation in both current assets and current liabilities. 2. The quick ratio is also in a fluctuating trend throughout the period 2009 2012 resulting as 0.52, 0.04, 1.35 and 1.26. The companys present liquidity position is satisfactory. 3. The net working capital is during 2009 to 2012 is also in fluctuating manner. 4. The inventory turnover Ratio is decreasing so it means the stock in inventory decreases so it is best. 5. The enterprise should try to reduce its investment in inventory, which is also reflected in quick ratio. This shall also help the enterprise to reduce investment in items may not be able to liquidate of very short notice. Besides this the no. of days for which inventory is available has also should have an increasing trend in compulsion to decrease in sales it has jumped to 11, 26, 37 days to 40 days fluctuating in between up to 40 days. The enterprise should try to reduce no. of days inventory available. 6. This ratio does not take into account profit factor. It considers only the cost component of the goods sold by the enterprise. It shows the no. of times the inventory covers the cost of goods sold. As seen in the data there is high reduction in the ratio of 2008 as compare to that of 2012 This is mainly because reduction in cost of goods sold due to reduction in sales and in proportionate increase in average inventory. The overall inventory turnover
ratio is decreased from 39.6 to 24.4 which is bad sign for the enterprise. Which shows the company not controlling inventory properly.
[11] CONCLUSION AND RECOMMENDATION CONCLUSION:1. The companys overall position is at a good position. Particularly the current years position is well due to raise in the profit level from the last year position. It is better for the organization to diversify the funds to different sectors in the present market scenario. 2. The investment in stores and spare parts Inventory should be kept as law as possible, considering demand of stores and spare parts. 3. The concept of total Inventory control is the main consideration of this study. The inventories constitute major portion of finished product and any reduction in Inventory cost each stage, like, purchase, storage and issue etc. contributes direct to the profit of the company. 4. To contribute and improve the existing system of Inventory Management. Various areas of Inventory Management were studied, analyzed evaluated taking in to consideration the scientific approach. The areas of study were.
The study has been concluded that:(1) Sales should be correctly forecasted. (2) Forecasting of production schedule should be properly done to assist in efficient purchasing and investment in materials and for controlling production Inventory.
Suitable procedure should be laid down to guide manages in performance evaluation and decision making. Following techniques should be implemented for efficient Inventory control ABC and VED classification. Establishment of system of budget. Use of perpetual Inventory records and continuous stock verification. Economic order quantity. Provisioning and purchase procedure. Review of slow and non-moving items.
A computerized system should be used for maintenance of Inventory records and EOQ etc.
RECOMMENDATION Looking at the present world scenario and economy these are some of the suggestions: 1. Planning committee As the number of competitors are increasing and even produce fertilizers with cost lower than KRIBHCO. So maintaining its prominence in the Fertilizer world as industry producing lowest cost fertilizer a committee making proper planning and different strategies should be formed only for procurement of materials keeping in mind the inventory. 2. Proper Planning From the study we learned that inventory in FY 08 has increased due to various macro economic factors discussed earlier. Precise and better forecasting should be done not only about the fertilizer industry but also about the world economy. Thus, maintaining low inventory and supplying right amount of materials for production. 3. Making better use of selective techniques We have seen that through selective control techniques stores can dispose the non moving items which are increasing inventory but this process does not eliminate all non moving items. So selective control techniques should be better used so that most of the non moving items are disposed off immediately. Other selective control techniques such as VED can also be used. 4. Improving the inventory control techniques for spares Spares such as mechanical, electrical, instrumentation spares are the materials which are one of the reasons for high inventory as these are either slow moving or non moving
items. Thus, inventory control techniques should be used for spares and better planning for procurement and storing should be made . 5. Revision of AP items Automatic procurement items are fast moving but duplicate indent may cause high inventory. Thus , company should review the AP list from time to time and check the list precisely for double indent. 6. Transfer of stock There are some items are required by different departments If one item finishes the item stock can be refilled by transfer from other department having surplus items. Thus, avoiding unnecessary procurement of those items. 7. Using EOQ model for procurement of raw materials The company orders the raw materials every month. This can increase the total cost of inventory. Thus, provide rright level of inventory with minimum cost. 8. Introducing SAP and ERP technology SAP software and ERP technology provides better maintenance of data and record through internal control. These technologies can provide easy accessibility to authorized employee of the organization to go through the record of data, inventory etc to help follow better inventory management.
[12] BIBILIOGRAPHY
WEBSITES www.kribhco.org www.kribhco.net www.authorstream.com/Presentation/mahesh050591-1347636-916 www.azinventorymanagement.com/economicorderquantity www.managementparadise.com
BOOKS Financial management o I. M. Pandey Management Accounting SHARMA & GUPTA o SHARMA & GUPTA o PILLAI & BHAGVATI