LIST OF CONTENTS

1) INTRODUCTION ABOUT IFFCO

2) NEED OF THE STUDY
3) OBJECTIVE OF THE STUDY
4) HYPOTHESIS
5) METHODOLOGY
a)

Inventory management

b)

Material department

c)

Purchase section

d)

Payment against purchase

e)

Delay in delivery

f)

Material coding

g)

Packing

h)

Inspection of material

i)

Accounting of raw material

j)

Insurance and verification

k)

Inventory control

l)

Techniques of Inventory control

m) Inventory software
n)

Different vouchers

6) DATA PRESENTAION AND ANALYSIS

a) Ratio analysis of IFFCO
7) FINDINGS OF THE STUDY
8) SUGGESTIONS AND RECOMMENDATION
9) BIBLIOGRAPHY
10) ANNEXURE

INTRODUCTION OF THE TOPIC

INVENTORY MANAGEMENT
Managing the level of inventory is like maintaining the level of water in a bath tub with
an open drain. The water is flowing out continuously. If water is let in too slowly, the tub
is soon empty. If the water is let in too fast, the tub overflows.
The dictionary meaning of inventory is stock of goods. The investment in inventory is
very high in most of the undertakings engaged in manufacturing. The amount of
investment is sometimes more in inventory than in other assets. About 90 percent part of
working capital is invested in inventories. It is necessary for every management to give
proper attention to inventory management. A proper planning of purchasing, handling,
storing and accounting should form a part of inventory management. By proper planning it
is possible for a company to reduce its levels of inventories to a considerable degree,
without any adverse effect on production and sales, by using simply inventory planning
and control technique. The reduction in excessive inventories carries a favorable impact on
companys profitability.
An efficient system of inventory management will determine
1)
2)
3)
4)

What to purchase
How much to purchase
From where to purchase
Where to store, etc.

Effective inventory management enables an organization to meet or exceed customers

expectations of product availability while maximizing net profits or minimizing co

INTRODUCTION ABOUT IFFCO

During mid- sixties the co-operative sector in India was responsible for distribution of 70
percent of fertilisers consumed in the country. This Sector had adequate infrastructure to
distribute fertilisers but had no production facilities of its own and hence dependent on
public/private Sectors for supplies. To overcome this lacuna and to bridge the demand
supply gap in the country, a new cooperative society was conceived to specifically cater to
the requirements of farmers. It was a unique venture in which the farmers of the
country through their own co-operative societies created this new institution to
safeguard their interests. The numbers of co-operative societies associated with IFFCO
have risen from 57 in 1967 to 38, 155 at present.
Indian Farmers Fertiliser Co-operative Limited (IFFCO) was registered on November 3,
1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative
Societies act 1984 & 2002, the Society is deemed to be registered as a Multistate
Cooperative Society. The Society is primarily engaged in production and distribution of
fertilisers. The byelaws of the Society provide a broad frame work for the activities of
IFFCO as a Cooperative Society.
IFFCO had set up the KALOL plant for manufacture of Nitrogenous
Fertiliser and KANDLA plant for manufacture of Phosphoric fertiliser. These plants
commenced commercial production in the year 1974-75.
IFFCO had emerged as Asias largest Fertiliser Cooperative with its four modern
sophisticated plants at KALOL and KANDLA in GUJRAT and PHULPUR and AONLA in
UTTAR PRADESH. IFFCO is countrys largest producer of nitrogenous and complex
fertiliser with the total production capacity of 2.6 million tones.

IFFCO IS:
1.

Largest producer of fertilisers in the country

2.

No. of Plant Locations : Five

3.

Installed Annual Capacity (000 MT)

a.

UREA

- 4242.2

b.

NPK/DAP

- 4335.4

c.

TOTAL N

- 2628.2

d.

TOTAL P2O5 - 1712.8

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

and 93.24 lakh MT of sales during 2007-08.
5. Contributed about 20% to the total N and 25% to the total P 2O5 produced in the
country during the year 2007-08.
6. Fertilisers marketed through 39,564 Cooperative Societies and 158 Farmers
Service Centers.
7. Service to the Farmers through a variety of programmes.

BOARD OF DIRECTORS
The Directors of IFFCO
Chairperson Shri Surinder Kumar Jakhar
Vice-Chairperson- Shri N.P. Patel

DIRECTORS
Shri Chandra Prakash
Shri S.L. Dharme Gowda
Shri Kartick Chandra Sarkar
Shri Harminder Singh Jassi
Shri M.Gopal Reddy
Shri Ankushrao R.Tope
Managing Director Dr. U.S.Awasthi
Dy. Managing Director-cum-Marketing Director Shri D.K. Bhatt
Dy. Managing Director Shri Rakesh Kapur
Director (Technical) - Shri V.K. Bali
Director (Coop. Development) Dr. G.N. Saxena
Director (HRD) Shri S.K. Mishra

BANKERS
India Overseas Bank
State Bank of India
Bank of Baroda
Standard Chartered Bank
The Maharashtra State Co-operative Bank Ltd.
The West Bengal State Co-operative Bank Ltd.
Madhya Pradesh State Co-operative Bank Ltd.
The Karnatake State Co-operative Bank Ltd.
The Punjab State Co-operative Bank Ltd.
The Hongkong and Shanghai Baking Co-operation Ltd.
ICICI Bank Ltd.
IDBI Bank Ltd.

OBJECTIVE OF THE COMPANY

The broad objectives of setting up this venture:1)

2)
3)
4)
5)
6)
7)
8)

Producing fertilisers.
Promoting the fertilisers distribution system in the co-operative sector.
Ensuring availability of fertilisers at the farmers doorstep.
Creating scientific awareness among farmers.
Promoting nations growth through modern family techniques.
Improving agricultural productivity through balanced fertiliser application.
Strengthening cooperation distribution system.
To promote the activity for enriching the life of the rural.
IFFCO has grown steadily since its inception today. It has emerged
not only as the largest fertiliser producing organization in India but also Asias
largest fertiliser co-operative.
IFFCO started with two modern plants at a cost of Rs. 976 million. One ammonia
and urea complex at Kalol and NPK plant at Kandla both in Gujrat.

IFFCOs MAIN AIM

Strengthening

management and participatory character of the Indian Cooperative

Movement by using duly tested and appropriate consultancy, advisory and technological
interventions sourced from within the country and abroad and in accordance of the
Cooperative Principles and in harmony with the law and culture of the land.

ORGANISATION CHART OF IFFCO

Board of Directors

Chairman & Vice Chairman

Managing Director

Director

Director

Marketing

Finance

Sr. Executive
Director
Technical

Executive
Director
(P& A)

Executive Dir.
Planning
&
development

INVESTMENT OUTSIDE IFFCO

1. Indian Potash Ltd (IPL)

IFFCOs Equity

: Rs. 2.68 Crore

Percentage of Equity held

: 34% ( Rs. 32.4 million)

Paid up capital (Mar 31, 2000)

: Rs 95 million

Activity

: Marketing of Potash and imported fertilisers

IPL is the Indian canalizing agency for domestic potash requirements.

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

Percentage of Equity held

: 19.09 %

Plant Site

: Darou, Senegal

Products

: Rock Phosphate, Phosphoric Acid and NPK Fertilisers

Activity

: Phosphoric Acid at Darou (Senegal)

Production capacity

: 1.5 million TPA

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

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

IFFCOs Equity

: Rs. 193.90 Crore

Percentage of Equity held

: 72.64%

Activity

: General Insurance

Corporate Office

: New Delhi

Paid up capital (Mar 31, 2006)

: Rs 2.2 billion

4. Oman India Fertiliser Company (OMIFCO)

IFFCOs Equity

: Rs. 329.08 Crore

Percentage of Equity held : 25%

Plant Site

: Sur, Oman

Products

: Ammonia, Urea

5. Indo Egyptian Fertiliser Co. (IEFC)

Project Cost

: USD 325 million

IFFCOs Paid up Equity

: Rs. 38.89 Crore

Debt : Equity Ratio

: 70 : 30

IFFCOs Equity

: 76%

El Nasr Mining Co.

: 24%

Activity

: Phos. Acid Plant

6. National Commodity and Derivative Exchange (NCDEX)

IFFCOs Paid up Equity

: Rs. 3.60 Crore

Percentage of Equity held

: 12%

Redeemable Preference Share Capital : Rs. 10 Crore

Activity

: On Line Trading in commodity futures

7. National Collateral Management Services Ltd. (NCMSL)

IFFCOs Equity

: Rs. 4 Crore

Percentage of Equity held

: 13.33%

Activity

: Collateral Risk Management Solutions

8. IFFCO Chhattisgarh Power Ltd

Project Cost

: Rs. 6265 Crore

IFFCOs Paid up Equity

: Rs. 11.10 Crore

10

Debt : Equity Ratio

: 70 : 30

IFFCO Equity

: 74%

CSEB

: 26%

Activity

: Power Generation (1320 MW)

9. Kisan International Trading FZE (KIT)

Investment

: Rs. 11 Crore*

Location

: Dubai

Activity

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

new overseas Joint Ventures.

* Includes Rs. 9.80 crore towards 9 bonus shares received during 2007-08.

10. Jordan India Fertiliser Company (JIFCO)

Project Cost

: USD 580 Million

IFFCO Equity : 52% (Rs. 2.08 Crore)

JPMC Equity : 48%,
Activity

: Phos. Acid Plant

11. IFFCO Kisan Sanchar Ltd. (IKSL)

Paid up Share Capital : Rs. 5 Crore
IFFCO Equity

: Rs. 3.65 Crore (73%

11

VISION
To augment the incremental incomes of farmers by helping them to increase their crop
productivity through balanced use of energy efficient fertilisers; maintain the
environmental health; and to make co-operative societies economically and democratically
strong for professionalized services to the farming community to ensure an empowered
rural India.

MISSION
IFFCOs mission is to enable Indian farmers to prosper through timely supply of
reliable, high quality agricultural inputs and services in an environmentally sustainable
manner and to undertake other activities to improve their welfare
1) To provide to farmers high quality fertilisers in right time and in adequate
quantities with an objective to increase crop productivity.
2) To make plants energy efficient and continually review various schemes to
conserve energy.
3) Commitment to health, safety, environment and forestry development to enrich the
quality of community life.
4) Commitment to social responsibilities for a strong social fabric.
5) To institutionalize core values and create a culture of team building, empowerment
and innovation which would help in incremental growth of employees and enable
achievement of strategic objectives.
6) Foster a culture of trust, openness and mutual concern to make working a
stimulating and challenging experience for stakeholders.
7) Building a value driven organization with an improved and responsive customer
focus. A true commitment to transparency, accountability and integrity in principle
and practice.
8) To acquire, assimilate and adopt reliable, efficient and cost effective technologies.
9) Sourcing raw materials for production of phosphatic fertilisers at economical cost
by entering into joint ventures outside India.
10)
To ensure growth in core and non-core sectors.
11)
A true co-operative society commitment for fostering co-operative
movement in the country.

12

Emerging as dynamic organization, focusing on strategic strengths, seizing

opportunities for generating and building a past success, enhancing earning to
maximize the shareholders value.

VISION 2010

In order to maintain the sustained pace of remarkable growth being achieved under
mission-2005 the society is in the process of formulating another growth plan VISION
2010 which aims at:

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

2. Installation of Ammonia and Urea plants including acquisition of fertilisers units.
3. Backwards integration to meet feedstock requirements such Phosphoric acid.
4. Generation of Power.
5. Exploration /Distribution of marketing of Hydrocarbons.
6. Value addition to agro-products and marketing.
7. Manufacturing of Petrochemicals, Banking and Financial services.
8. Information technology and IT enabled services.
9. Production and marketing of micronutrients seeds, biofertilisers, pesticides etc.

13

APPROACH
To achieve our mission, IFFCO as a Cooperative society, undertakes several activities
Covering a broad spectrum of areas to promote welfare of member cooperatives and
farmers. The activities envisaged to be covered are exhaustively defined in IFFCOs Byelaws.

COMMITMENT

Our thirst for ever improving the services to farmers and member co-operatives is
insatiable, commitment to quality is insurmountable and harnessing of mother earths
bounty to drive hunger away from India in an ecologically sustainable manner is the prime
mission.
All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian
Farmer who forms the moving spirit behind this mission.

14

PERFORMANCE HIGHLIGHTS
(For the year 2007-08)

Production of fertilisers

68.47 lakh tonne

(previous best 70.13 lakh tonne in 2006-07)

Highest production of urea

39.63 lakh tonne

(previous best 37.87 lakh tonne in 2006-07)

Production of NPK/DAP/NP-

28.84 lakh tonne

(previous best 32.26 lakh tonne in 2006-07)

Highest sale of fertilisers

93.24 lakh tonne

(previous best 86.10 lakh tonne in 2006-07)

Highest sale of urea

54.29 lakh tonne

(previous best 52.41 lakh tonne in 2006-07)

Highest sale of NPK/DAP/NP-

38.95 lakh tonne

(previous best 33.69 lakh tonne in 2006-07)

Highest turnover

Rs. 12163 crore

(previous best RS. 10330 crore in 2006-07)

Profit before tax

Rs. 380.52 crore

(previous best Rs. 807.09 crore in 2006-07 )

Profit after tax

RS. 257.59 crore

(previous best Rs. 557.21 crore in 2006-07 )

Highest marketing productivity -

6158 tonne per employee

(previous best 5736 tonne/employee in 2006-07)

15

Plant productivity

1354 tonne per employee

(previous best 1669 tonne/employee in 2006-07)

Lowest energy consumption-urea - 5.907 G cal/tonne
(previous best 5.992 G cal/tonne in 2006-07 )

IFFCO ASSOCIATES
1. INDUSTRIES CHIMIQUES DU SENEGAL
2. OMAN INDIA FERTILISER COMPANY S.A.O.C.
3. INDIAN POTASH LTD.
4. NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD.
5. NATIONAL COLLATERAL MANAGEMENT SERVICES LTD.
6. COOPERATIVE RURAL DEVELOPMENT TRUST
7. KISAN SEWA TRUST
8. IFFCO FOUNDATION
9. LEGEND INTERNATIONAL HOLDINGS INC

16

AWARDS GALORE

KALOL UNIT
1) Seven awards received for overall performances from FAI.
2) Two awards for industrial safety from GOI.
3) Award for technical innovation from FAI.
4) Two Rajya Bhasha Shield for promoting Hindi.
5) Award for safety from National Safety Council, Chicago.
6) Indo German greentech environment excellence award.

PHULPUR UNIT
1) Four awards for productivity from NPC.
2) Six national safetys award from GOI.
3) Two awards for overall performance from FAI.
4) Two awards for technical innovation from FAI.
5) FAIs Award for Best Overall Performance of an operating fertiliser unit for Nitrogen
(Ammonia and Urea) Plant jointly with Zuari Industries Limited, Goa.

6) Three national energy conservation awards.

7) Three awards for best environmental protection from FAI.
8) Best environmental excellence awards from Indo German green tech foundation.
9) Best technical paper award by FAI.

KANDLA UNIT
1) Twelve safety awards from national safety council Bombay GOI.
2) Twenty-three safeties award from Gujarat.
3) Raj Bhasa award for promoting Hindi.

17

4) Six awards for overall performance from FAI.

AONLA UNIT
1) Award for best implemented project ( 2nd price) from GOI.
2) Award for conservation of energy from GOI.

GROWTH IN THE NUMBER OF MEMBER SOCIETIES

1967-68

57

1974-75

25528

1980-81

26960

1986-87

28134

1992-93

30200

1998-99

35072

2004-05

37381

2007-08

39564

18

ABOUT AONLA UNIT

LOCATION
State

Uttar Pradesh

State Capital

Lucknow

Distance from Lucknow

280 Km.

Distance from New Delhi

260 Km.

Nearest Airport

New Delhi

Railway Station

Aonla (10 Km. from the Plant)

Road

Plant is In BareillyAonla Bareilly highway.

Area under Plant

260 Hectares

Area under Township

220 Hectares

YEAR OF COMMISSIONING

: Ammonia- Urea Complex commissioned in 1988

INVESTMENT

: Rs. 651.6 Crore AONLA- I

YEAR OF EXPANSION

: 1996

INVESTMENT

: Rs. 954.7 Crore AONLA- II

YEAR OF DEBOTTLENECKING: 2008

INVESTMENT

PRODUCT

: Rs.149.2 Crore

CAPACITY
TPD

TECHNOLOGY

TPA

AMMONIA

3480

11,48,400

HALDOR TOPSOE

UREA

6060

19,99,800

SNAMPROGETTI

2788

9,19,908

The IFFCO AONLA Unit is located in the Gangetic Plains of Uttar Pradesh in Bareilly
district about 28 Km. Southwest on Bareilly-Aonla Road. It was set up on 08 January

19

1985 and started commercial urea production at 16 July 1988. The infrastructure of
AONLA unit is very big and constructed on 713 acres of land.
IFFCO Aonla unit is the most efficient and quality-wise as well as environmental
oriented unit so that M/s KPMG Peat Marwick, a quality registrar has certified it as ISO:
9002 unit and M/s BVQI London has accredited it as ISO:14001 unit. The Aonla unit, an
Ammonia- urea complex is comprised of the two phases:
o AONLA-1
o AOLLA-2
AONLA -1 was established in 1988 and it was digested to nation by honourable Prime
Minister of India late Shri Rajeev Gandhi on 17 May 1989.
AONLA-2 was established in1996 December. This unit was designed to nation by
honorable Prime Minister of India Shri I.K. Gujral on 28 Jan 1997.

SALIANT FEATURES OF AONLA UNIT

Particular

Aonla-1

Aonla-2

Ammonia

4,45,500MT

4,45,500MT

Urea

7,26,000MT

7,26,000MT

Capacity (P.A.)

Project zero date

08.01.1985
Mechanical completion
08.01.1988
Ammonia
production 15.05.1988
started

30.09.1993
30.11.1996
15.12.1996

Urea production started

18.05.1988

26.11.1996

feedstock

Natural gas

Natural gas with Naphtha

Capacity Enhancement of Aonla and Phulpur Units

IFFCO has submitted the Techno-Economic Feasibility Report (TEFR) for Capacity
Enhancement of Aonla and Phulpur Unit to the Department of Fertilisers (DOF).

20

Following enhancement in capacity has been envisaged with a total annual increase in
Urea Capacity by 5.115 lakh MT:
Name of Unit

Present Capacity

Proposed

Increase

in

Phulpur-1
Phulpur-2
Aonla-1
Aonla-2
Total

( MTPD)
1670
2620
2620
2620
9530

Capacity (MTPD)
2080
3000
3000
3000
11080

Capacity (MTPD)
410
380
380
380
1550

The installed cost for the Enhanced Capacity is estimated at about Rs. 19 lakh per MTPD
of Urea as against the Rs. 65-70 lakh per MTPD Urea in case of a Grassroots Plant.
Therefore De-bottlenecking of existing Urea Units is the best route to create additional
capacity.
IFFCO has initiated action for De-bottlenecking of its plant at Aonla and Phulpur Units for
Capacity Enhancement. We are awaiting final clearance from DOF. Incidentally this will
also reduce the subsidy to Government vis a vis imported Urea.

PLANTS OF AONLA UNIT

There are mainly four plants in the unit namely:
1. Ammonia Plant
2. Urea plant
3. Product Handling Plant
4. Steam and Power Generation Plant

21

LINE CHART AT AONLA UNIT

Sr. General Manager

General Manager

JGM/CM
Production
Ammonia

JGM/CM
Maint.

General Manager

JGM/CM

JGM/CM

JGM/CM

Technical

Utility

Comm.

F&A

F& A

Mechanical

Process

Power Plant

Purchase

Electrical

Design &

Offsite

Store

JGM/CM

Plant
Urea Plant

Drawing
Product

Instrumental
Library &

Handling
Civil

Document

Fire & Safety

& Env.

Traffic

Laboratory

Training &
Development
General
Engg.

JGM/CM
JGM/CM

22

Finance & Accounts Department At A Glance

The Finance & Accounts Department of IFFCO, Aonla is divided into 5 sections, to
facilitate smooth and easy functioning and control.

Organisation Structure
FINANCE & ACCOUNT
DEPARTMENT

BOOKS/FICC
CELL

FINANCIAL
CONCURRENCE

Supply
Section

Indigenous
supply

BILL
SECTION

PAYROLL
SECTION

Note Sheet
Payment

Imported
supply

PSL
SECTION

Work Order

Work
contract

Service
contract

23

Line of Control in Finance & Account Department

HOD/ C.M. (F & A)

Senior Manager
(F& A)

Senior Manager
(F& A)

Manager
(Account)

Manager
(Account)

Deputy Account
Manager

Deputy Account
Manager

Manager
(Account)

Deputy Account
Manager

Manager
(Account)

Deputy Account
Manager

Senior Account Officers

Account Officers
Junior Account officers
Senior Accountant
Junior Accountant

24

FINANCE AND ACOUNTS DEPARTMENT

Each company is carried with a purpose of earning money. Money or capital being a scare
as well as crucial resource in the working of any organization needs to be given prime
importance. The financial resources have been planned and controlled in a proper and
continuous manner. As among the most cr[`ucial decisions of a firm are those which relate
to finance. Finance & accounts from an integral part of any organization. Proper and
smooth functioning of this section is very vital for the organization to survive and grow.
Finance functions are of two types:
Managerial finance function
Routine finance function
Managerial finance functions are so called because they require skilful planning, control
and execution of financial activities.
Routine finance functions on the other hand, do not require a great managerial ability to
carry them out. They are chiefly and are incidental to the effective handling of the material
finance functions.
The various areas covering under the preview of subsections are as follows

1. BOOKS SECTION
This section basically deals with accounting function, maintenance and keeping of records.
The various functions include:
a. Books: Preparing and maintaining balance sheets.
b. IFCC (Fertiliser Industries Coordination committee)
c. Costing & Pricing Cells
d. Reporting

2. PAY ROLL SECTION

This section deals with the payments of salary and wages to the employees and
extending various other benefits are covering under to preview are
a. Salary
b. Leave Travel Concession (LTC)
25

c. Medical Allowance
d. Conveyance
e. Advances
f. Loans to employees

3. Taxation Section
As per the status and operations of the society, It deals with the following Taxes:a. Central Excise Duty
b. Income Tax
c. Service Tax
d. Sales Tax

Central Excise Duty As we know that this duty is charged by Central

Government on the goods manufactured. Duty on ammonia is charged. In this relation
monthly production report is prepared and all documents and accounts are prepared by the
Finance & Accounts Department. The duty is deposited in the Government bank account
on the 5th day of the month.
EXCISE Duty is not charged on production of Urea.

26

NEED OF THE STUDY

In every organization inventory management is a big problem and for IFFCO it is too
much typical to handle the inventory in a better and efficient way. Because there will
be lack of inventory then the production will be interrupted and it is not good for any
organization.
1) The management tries to make its inventory system more efficient and effective to
continue the smooth production of fertilizers.
2) An organization is always interested in minimizing the cost that is invested in the
inventory and how to regulate the whole inventory system in a better way.
3) Management of any organization tries to ensure the interrupted supply without
making over investment in the inventories. As we know that IFFCO has large
machineries due to which it has to retain too much stock of spares to avoid the
interruption?
4) As we know that IFFCO is a very big organization and it is typical to coordinate
with all the employees who are working there. But for the effective inventory
system there should be coordination between the store, purchase department and
finance department. So what should be done for the coordination between the
departments to make the inventory system effective?
5) This report is prepared to analyze the working of various departments that work in
coordination with Finance department as payroll section, bill section, taxation
section etc.

27

OBJECTIVE OF STUDY
The main aim of study is to check the efficiency and effectiveness of inventory
management system.
Investment in inventory incurs a high cost. Therefore effective management is necessary
to minimize the cost and ultimately increases profitability of an organization.
A part from our main objective our main objectives are:
1) To analyze the level of investment in inventory by IFFCO.
2) To analyze the financial position of the company.
3) To give suggestion if any, regarding effective inventory management.
Or
To give suggestions to ensures smooth and uninterrupted supply without making
unnecessary investment of funds in inventory.

28

HYPOTHEIS

IFFCO is a big organization. It is very typical for it to manage the inventory. This report is
basically concerned on how to manage inventory in a more effective way. There is any
alternative by which it can be managed in a better way or the tradition inventory
management is better.

29

METHODOLOGY

The data has been collected from the primary resources as questionnaire. Then it was
distributed to all the employees of the finance department and purchase department. The
questionnaire is built considering the availability of data and convenience. Data were
collected through the inventory software, databases, net and by asking questions. The
collected data is captured into the questionnaire for the analysis. There is no manual
coding. I have also included some financial data with the help of annual report.
The data is collected with the help of questionnaire and observation. In the
questionnaire all the relevant questions regarding the inventory management are included.
Here we have used convenience sampling that is we have selected the data according to
our convenience. I have followed that results which are quite similar in responses.

30

TOOLS OF THE STUDY

For preparing the report the data has collected through the literature survey. The graphs
and tables are used to complete this study. There is the use of Histogram in Graphical
presentation.

SOURCES OF DATA
There were various sources for collecting the data. But I have collected data from some of
the resources that are as following1) Questionnaire
2) Internet
3) Annual report of IFFCO
4) Accounting manual of IFFCO
5) From the stores
6) By the inventory software (PSL) that is used in IFFCO

31

CONCEPT OF INVENTORY MANAGEMENT

Dictionary meaning of inventory is detailed list of movable articles. The literary
meaning of inventory is stock of goods. According to International Accounting Standards2, inventory is a tangible property which is held:
For sale in the ordinary course of business;
In the process of manufacture for such a sale;
For consumption in the process of production of goods and services for sale
including maintenance supplies and consumables other than machinery spares.
Inventory Management involves the control of assets being produced for the purpose of
sale in the normal course of the company's operations. The goal of effective inventory
management is to minimize the total costs - direct and indirect - that are associated with
holding inventories. However, the importance of inventory management to the company
depends upon the extent of investment in inventory.
The term inventory includes:
Inventory of Raw Materials :
In the case of manufacturing concerns, various types of raw
materials are being used in the production system. To ensure smooth production
function and also to avoid any kind of production delays the concern has to keep
inventory of raw materials.
Inventory of Stores and Spare Parts :
This inventory consists of those products which serve as
accessories to the main products manufactured for the purpose of sale. Bolts, nuts
screws, clamps, etc., are the examples of stores and spares parts. Such spare parts are
either bought from outside or manufactured in the concern itself.
Inventory of Work-In-Process (W.I.P.) :
Sometimes the manufacturing system involves various
processes for converting raw materials into finished goods. As such, some materials
might have been issued to the production process but might not have been completed
as finished goods. This is known as work-in-process.
32

 Inventory of Finished Goods :

All goods manufactured during a particular period may not
be sold immediately. These are to be kept in warehouse. The idea is to uncouple the
production and sales function so that it is no longer necessary to produce the goods
before a sale can occur.
The application of managerial function on the basis of management
principles in the field of inventory is termed as inventory management. Managerial
functions are performed with respect to inventory; it may be called inventory
management.
The objective of inventory management is to plan the optimum size of inventory which is
neither excessive nor deficient and is timely available. For timely availability along with
optimum size, there is need for controlling as well. Only on the basis of various control
techniques one can ensures whether inventory would be timely available. But effective
control in itself depends upon organizing and coordination. Thus, inventory management
comprises the functions of planning, controlling and organizing the types of all goods,
quantity, status, flow and time- sequence etc.

Need for inventory management

Inventory management is an integral part of general management. Three important
functional aspects of a business are closely related to inventory management. These are:
1) Production management
2) Marketing management
3) Financial management
Here the production management and marketing management are related to the physical
aspect of inventory management and; financial management is concerned with the
financial aspect of the inventory management.
In production management, production manager will always strive to have a large
inventory of raw materials and of such a good quality as to ensure stable production
operations.
33

In marketing management, marketing manager aims at satisfying ever increasing

demands for improved customers service by having large inventory of inside goods.
In financial management, finance manager will effort towards to keep investments in
different types of inventory at a minimum possible level so that the business concern may
earn maximum return.

MATERIAL DEPARTMENT

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

Purchasing

Storing and control of materials

Thats why; it is divided into following sections:

Purchase section ( It is responsible for purchasing of materials )

Store section ( It stores the inputs)

These both sections are interrelated and perform their function on coordination.
All purchases are to be made only by the materials department except purchases of petty
item through some vouchers and Department Managers within the limits prescribed in
purchase procedure. Material purchase indent should give following information:
1) Quantity in stores
2) Average monthly consumption since last purchase for stock items
3) Maximum /minimum level
4) Last purchase order reference
5) Reorder level

34

PURCHASE SECTION
The purchase department is at the interface of internal and external department. Purchase
department do enquiry about the inputs whether it is required or not. This enquiry is done
in two ways that are:
1) Single stage
2) Two stage
After enquiry purchase department invites a tender. After confirmation of all terms and
conditions the department contacts the supplier and orders for the inputs. Thus it is
responsible for purchasing of materials and other raw materials whatever is required by the
organization. Purchase department is responsible for the delivery of right amount of
material at the right time and at the right location to avoid the hampering of the
production.
Purchasing is distinct from buying. Purchasing involves the extra knowledge as the
tenders, various vendors, their prices, comparison between them, after sale service,
dispatching follow up and payment terms.
The purchase department considers various things before purchasing the raw materials.
1. Information about the input material
2. Sources of material- vendor
3. Reasonable price of that material
4. All terms and conditions
Indentor is that person which raises the indent.

35

PURCHASE PROCESS
The purchase process can be expressed as following:

INDENTOR

Material Purchase Requirement (MPR)

Single stage
Enquiry

Two stage

E- Procurement

Manual

(15 days)

(21 days)

Opening

Quotation Comparative Statement (QCS)

Technically Acceptable L-1 Bidder

Order
(With approval of competent authority)

It can also be summarized as follows:

36

1) RAISING OF INDENT: First of all the indentor raises the indent. This indentor
may belong to any department. Now the indentor informs to the store. If that
particular material is not available at the particular point of time then store informs
to the purchase department. After it the working of purchase department starts.

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

indentor and checks whether that material is available in the store or not. The
availability of input material at all points of time is the responsibility of purchase
department.

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

by the indentor that he has need of certain materials. He raises indent by filling a
form Material Purchase Requisition (MPR). In this he gives several information
like:a.

Material description/ Proposed Reason

b.

Item code/ proposed code

c.

Unit

d.

Quantity required

e.

Value

f.

Budget code

g.

MPR No.

h.

Indentor

4) MRP SCRUTINY: Next step involves scrutinizing of the MRP to certified the
genuinely of the need, for this, first approval to given by immediate higher authority
of the indentor. Next, the MRP is send to the stores, to check whether the material is
available or not. If it is not available the MRP goes to the purchase department. For
further action. Here it is scrutinize in three ways :

Approval scrutiny

Budget scrutiny

Technical scrutiny

37

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

two types:
I.
II.

Single stage
Two stage
SINGLE STAGE: Single stage is followed when there is no or very few
chance of technical deviation. Here there is no restriction on supplier or
vendor. This enquiry is done in case of nonproprietary items.
TWO STAGE: Two stage enquiry is followed when there is more chances of
technical deviation. This enquiry is done in case of proprietary items.

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

Proprietary items: These are those items e.g. spares which have to be
bought from particular supplier or vendor.

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

vendor.

Enquiry is sent in order to know the prices and other terms and conditions of vendors.
Bidding can be done in three ways-

I.

Proprietary bidding: This is for the proprietary items and is sent to only
one vendor. Here the proprietor is invited to set a competitive price.

II.

Limited tender enquiry: This is done for non proprietary items and bids
are invited from a limited no. of vendors selected from the registered
vendors with the company.

III.

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

than three lakhs and the item is non proprietary then press tenders are
issued in various news papers. There may be global tenders also.

6) Receiving of offers: After all the bids have been submitted the tenders are opened
before tender committee to compare the quotations38

Quotations comparison statement (QCS) is made and bid with lowest quotation is
generally chosen. QCS is also sent to the technical department and in consultation with it
one more than one offer are chosen, giving quality and price the top priority. Quotation
must be technically acceptable. Generally technically acceptable L-1 bidder is chosen.

7) Purchase order: After selecting the best offer, purchase order is sent to that vendor
with all the terms and conditions specified and details of the material to be purchased
are also given. A bank guarantee of performance is taken from the vendor in advance
which is usually 5% of the P.O.A. time limit is set for delivery of consignment and in
case of delay a penalty is imposed @ 5% of P.O. per week.

8) Receipt of materials: After the consignment reaches the stipulated place, the
payment is done by the organization according to the purchase terms agreed upon by
the two parties. The material is checked for quality conditions, quantity and then sent
to the store where the store releases the Stores Receipt Voucher (SRV). From here it
is delivered to the indentor. Normal payment is done after 30 days from the receipt or
acceptance of material.

9) Follow up done for every order: It may be regarding delay in supply, changes
in price, defective or damaged items supplied etc. For every indent, a separate file is
opened and correspondence goes on. For every step, recommendations of indentor,
manager (F& A), materials manager & general manager are sought. In case of
damaged input materials the store does not accept the materials. A rejection report is
prepared in case of damaged items.

39

PAYMANT AGAINST PURCHASE:

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

1.

Advance payment to supplier :

If both the parties are agreed upon advance payment that is specifically provided in the
contract order, only then advance payment is given. The advance payment to
contractors shall be made against submission of bank guarantee in the Performa
provided by IFFCO. Advance payment against indemnity bond shall not be released as
provided in the purchase procedure.

2.

Full payment / 90% to 95% payment :

In case the terms of payment provide for full payment or part payment against dispatch
documents through bank, the supplier will be negotiating the documents through the
bankers. After the documents are received by the bankers, they are forwarding bank
intimation along with a copy of the purchase order to ascertain that the invoice is raised
for the material ordered and conforms to the other terms and conditions of purchase order.
After the intimation from the bank is received the invoice of the suppliers will be
scrutinized by the finance and account department for the following-

i.

Purchase order number

ii.

Whether materials supplied are as specified in the purchase

iii.

Whether materials supplied are as specified in the purchase order.

iv.

Quantity supplied.

v.

Price basis whether F.O.R. or Ex-works

vi.

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

vii.

Whether bank charges are claimed as per the purchase order.

viii.

Other terms and conditions of the purchase order.

40

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

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

In case the purchase order provides the 100% payment after receiving of materials and
accepted payment is to be released after the MRR is received from the stores department.
In case the purchase order dispatch documents and the balance payment after receipt of
materials, the balance payment may also to be released after the MRR is received and it is
confirmed that the material has been accepted after inspection and taken on charge.

Before released of the payment, the invoices should be scrutinized as the case of payments
released through bank. In addition it should also be verified whether all the items invoiced
have been received, inspected and accepted per the MRR.

DELAY IN DELIVERY
In any contract, the time and date of the delivery is the essence of the contract. In the event
of delay in the execution of the order beyond the date of delivery as stipulated in the order,
the project authorities may take following actions
1. Accept delayed delivery at price reduced by a sum equivalent to 0.5 % if the value
goods not delivered for every week of delay or part thereof limited to a maximum
of 5% of the contract value.

41

OR
2. Cancel the order in part or full and purchase such cancelled materials from
elsewhere on account and at the risk of the suppler without prejudice to his right
inspect of goods delivered.

IMPORTED MATERIAL
Materials procured may be either indigenous or imported. For major projects the foreign
contracts are normally finalized at head office level and payment against these contracts
are made by the concerned unit. Where the order has been placed by the unit directly, they
will make the payment to the foreign party by debiting to the appropriate advance account.
If the payments are made through L/C against documents, the same shall be debited to
advances to foreign suppliers account. On receipt of material at site, project engineer shall
prepared the MRR and sent same to project accounts for clearing the suppliers advance
account for material.
Clearing and handling of imported material is the responsibility of material department on
the arrival of ship the materials will be cleared with reference to the invoices and bills. For
any short landing or breakage between the port of dispatch and port of destination, claim
action shall be taken by them.

42

MATERIAL CODING

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

Advantages of codification
1. Lengthy descriptions are replaced by a simple code.
2. It economizes space in forms and reduces clerical work.
3. Ease in identification of stores.
4. It is comprehensive.
5. It facilitates, mechanized accounting.
6. Secrecy of description can be maintained.
7. It ensures clarity.

43

CODING

There are different types of coding that are as follows:

a)Numeric: Each item is given a number.
b)Alphabetic: Each item is denoted by a combination of alphabets. If the alphabet
selected indicates the inventory sound when it is pronounced, it is known as
mnemonic system. This helps in remembering the codes.
c) Alphanumeric: It is a combination of alphabets and numeric code.
d)Decimal System: It is basically a numeric system; sub-group may be indicated by
decimals.
In IFFCO 12 digits coding is done.
The various codes for the different materials are as follows:
1.

Ammonia 11

2.

Urea

3.

Offsite

- 12
- 13

4. Product handling -14

5.

Power plant -15

2 digits = for the plant location
3 digits = for the equipment
3 digits = for the material
3 digits = for the size and
1 digit = for the item identification.

44

Packing & Dispatch

All packing, boxing and protection shall conform to the specification or requirements of
the order. The supplier shall be held liable for the damage or breakage of the goods due to
defective or insufficient packing. It will be according to term and conditions that are given
already in the format.
All goods shall be dispatched by rail/road freight paid and the railway receipt/lorry receipt
shall be posted to the concerned officer of IFFCO.

DOCUMENT REQUIRED FOR THE DISPATCH OF GOODS

Following documents are required for the dispatching of materials:
Challan

3 copies

Packing list

3 copies

Test certificate

3 copies

Railway/ Lorry/ Air

4 copies

Consignment note

Inspection of Material

The material department shall coordinate with other departments and arrange inspection of
material at vendors shop prior to dispatch. Inspection of materials in other cases shall be
carried out on receipt of materials at site. Only materials those cleared by the inspection
will be taken on charge in stores. The person inspecting the material will sign

on the stores receipt voucher in token of having inspected and accepted the material.
Generally indentor is called upon for the inspection of the material.
45

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

Damaged/Short/Rejected Materials

If the materials are received short or in damaged condition, there are some conditions in
this regard.
In cases where the responsibility for the transit insurance is on IFFCO, a claim should
be lodged with insurance company for the value of material plus incidentals. This
insurance is done by IFFCO TOKIO GENERAL INSURANCE COMPANY. As soon
as the shortage per damage of the materials is noticed the material department will
lodge the provisional claim with the underwriters and pass on the relevant papers to
the finance & accounts department for lodging monetary claim.
In respect of transit insurance claims bill section will pass an adjustment
Entry debiting claim recoverable account and credit the Advance to
Vendors account. After the adjustments the bill section sent the copy of journal
voucher along with all necessary details such as P.O. No. , MRR No. quantity and
value, name of the supplier to the insurance section for following up the claim with
the insurance company.
Where the responsibility for short supply or damages in transit is of the suppliers, the
material department should take up the matter with the supplier for arranging
replacement. A report is prepared in this case. Its copies are sent to the supplier,
purchase department and finance and account department.

46

Accounting of Raw Materials

Based on the projected consumption requirement of raw materials, the procurement action
is taken by the commercial department at the head office which is in Delhi.
Described below is the accounting requirement of major raw material.

Imported Phosphoric acid and Ammonia

The consignment of phosphoric acid and Ammonia are received at Kandla and the material
actually received is valued at the contracted cost & freight price.
Where free on board (FOB) price is agreed, the ocean freight element is loaded separately.
All connected expenditure like customs duty; handling charges etc. are also included in
inventory valuation.
The valuation of inventory at the month end is to be made on the basis of exchange rates
prevailing on the last day of the month. The difference if any between the provisional rate
and the actual payment rate shall be charged off to the consumption account, if the
material is already consumed.
The account department also ensures that all claim suppliers for shortage are booked on
monthly basis and necessary on quarterly basis for the pending claims.

Indigenous Ammonia
The indigenous ammonia is supplied by KRIBHCO / GNFC to Kandla unit. The quantity
received is accounted at the price payable to the party which is fixed by the Govt. of India.
This price is fixed at par with the landed cost of imported ammonia.

Potash
Potash purchase orders are placed by the commercial department time to time depending
on the material requirement. The material received valued at agreed price plus local sales
tax and freight for transportation of material up to plant site.
The finance department at head office ensure that payment
for these raw materials are released on due dates to avoid interest liability. After releasing
47

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

Natural Gas
Kalol and Aonla plant consume as feed stock and fuel. As per the contract with ONGC,
gas is supplied to IFFCO at the price fixed by Govt. of India from time to time.
The meters provided at the inlet point in the plants are the basis for monthly
billing. Meter reading is carried out jointly by ONGC / GAIL and IFFCO representatives.
The unit sends the telex to head office for making payment to ONGC / GAIL after due
certification of bill by the head of technical department about quantity of gas received.

Naphtha
Naphtha is supplied by IOC against advance payment terms. There are excise duty
concessions available for these items provided they are consumed for manufacture of
fertilisers. Accounts department in coordination with production department shall ensure
that all the excise duty requirements are fulfilled that the duty concessions are fully
availed. The inventory is valued based on the quantity received as per MRR received from
production department on monthly basis. The price payable to IOC for naphtha is fixed by
the Govt. by time to time the naphtha is supplied to Kalol unit from Mathura refinery.

Catalysts & Resins

The Catalysts & Resins are produced by the material department at the plant; on the
receipt of the material the inventory is valued at the agreed price. For Catalysts & Resins
where IFFCO has pooling arrangement with other companies, the material received is
taken to inventory at the actual price paid and equivalent amount is credited to material
received on loan account.
This entry will be reverse when the material is procured by IFFCO and replenished for
return of loan. The inventory and consumption account then shall be accounted at the
actual procurement price.

48

STORE SECTION
Store of any organization is of vital importance. It is the responsibility of stores to receive
the material required by the organizations operations to keep it properly & to issue it as
when required. The stores are divided in two subsections for greater flexibility like receipt
and custody section. In IFFCO there are two stores.
a. Store A for Aonla-1( this store contains that spares which are used by Aonla-1)
b. Store B for Aonla-2 unit.( it contains mainly catalysts used by Aonla-2 )
Store has the following warehouses:

Main Store

Cement godown

Petrol Pump

Cable yard

Chemical godown

Paint godown

PDIL store

A.

RECEIPT SECTION -

This section is responsible for receiving the materials and inspecting them. The process
involves following steps.
1)

The document regarding the material may be sent to the stores, purchase,
concerned department. But ultimately they have to be send to stores.
The documents may be:

Goods receipt / railway receipt / challan

Form

Excise duty

2)

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

3)

After the entry in the register, the document is given to an agent termed as handling
contractor. He will collect the material.

4)

Consignments cases are intact. If not he will ask for open delivery. Then he has to
deliver the goods to stores. In case of damage he has to give a certificate. Some
49

consignment may without document i.e. door delivery and is some cases it may be
face to face delivery.
5)

If any discrepancy is found during checking, the accounts section is informed for
necessary action and getting claim from insurance company. The date of receipt is
filled in CRR.

6)

The next operation is filling the stores receipt vouchers (SRV). Here the quantity
mentioned in challan and purchase order are compared, SRV Has 7 copies, two for
accounts and one for each purchase, stores, indentor, master file & custody section.

7)

Inspection is done by the indentor:

Suppose all items are accepted then the material is handed to custody section

after putting identification & giving a SRV control number.

If some items are defective then the accepted items will be sent to custody and

for defective ones, information is sent to supplier, accounts, indentor & insurance
company and the particulars noted in rejection register.
If there is some breakage then either item may be replaced by company or claim

against insurance is obtained, when an item is replaced, its dispatch advice is

made.
8) Direct charge SRV (DCSRV) is prepared when indentor wants material directly
from receipt section.

B)

CUSTODY SECTION -

This section is responsible for proper keeping of materials and issuing them when required
by different department and contractors. The material received here is first checked as per
SRV for every material there is a card. These cards are located in bins according to code of
material is received in custody the card information is updated.
When someone wants to issue certain material he has to fill the store issue voucher (SIV).
Once the item is issued again information is updated in the kardex. When a particular part
is returned then this received in stores, by internal stores return voucher (ISRV). After
issuing the material the number of issue and the quantity issued is noted in SIV control
registers.
Custody section takes care of spares.
50

SPARES
About 36848 spares of Aonla Unit-1 are housed in store and 17799 spares of Aonla Unit-2
are housed in store. Spares have been classified plant wise. The first digit of the code of
item is numbered according to given criterion

Ammonia

Urea

Product handling

Power

Sp. Equipments

General items

In IFFCO inventory is divided into two types:

i.

General and

ii.

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

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

51

ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEM

AONLA UNIT -1

Verified A Class
B Class
C Class
Unclassified Total
in the
General Spare General Spare General Spare General Spare General Spare
year
2000-01

2001-02

2002-03

2004-05

22

20

8323

10381 0

8345

10401

2005-06

72

122

3512

1277

3584

1400

2006-07

49

41

90

2007-08

134

402

384

630

3982

4072

4500

5104

23

112

229

613

523

1876

775

2631

134

403

550

884

16097

16381 523

1876

17304

19544

Total

52

ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEMS

AONLA UNIT-2

Verified
in

A Class

B Class

C Class

Unclassified

Total

the General Spare General Spare General Spare General Spare General Spare

year
2001-02

110

271

203

393

313

664

2002-03

11

11

2004-05

2713

5353

2713

5353

2005-06

1185

311

1185

811

2006-07

13

13

2007-08

134

389

257

626

1428

2204

1819

3279

159

219

139

1115

298

1334

134

389

367

897

5703

9055

139

1115

6343

11456

Total

53

ACCOUNTING FOR STORES

General Outline of stores Function:

a. The authority of receipt, store and issue of all material is centralized in the
materials department subject to exception in permitted in certain cases. In certain cases
a nominal stock of few consumable items can be permitted with uses departments such
as maintenance, laboratory and administration department for meeting emergencies. In
addition certain chemicals are permitted to be stored in production department due to
the operational needs.
b. The authority of storage of packing materials like bags is vested with bagging
department. The bagging department receives the material, gets it inspected in
laboratory, issued the same for product bagging and maintains the stocks.
c. Maintenance of records for all quantitative transaction of packing material is the
responsibility of bagging department. Similarly the raw materials are handled by
production department with all responsibilities in respect of quantity accounting.

Functions of Store Accounting Section

The section dealing with accounting of stores in the finance department shall have
following functions:1.

Accounting of receipts, issues, return and transfer of materials.

2.

Accounting of imported materials for capital works and operations.

3.

Associating with stores section for stock verification.

4.

Valuation of stores items should do on weighted average basis.

54

Receipt /Issues/ Returns Transfer of Materials

a) The second copy of the material receiving reports after pricing, shall be passed on
to the stores accounts sections to scrutinized the same with reference to store item
code quantity of measure etc. and process it for accounting of receipt of materials.
After issue / return of materials, issue section of stores department arranges data
entry on the daily basis. Checklist processed is sent to stores accounting section for
scrutiny in respect of store item code, cost / service code, expense code and unit
measure etc.
b) The corrections and financial and financial adjustments are made to arrive at final
check list after scrutiny of final check list entry in priced store ledger is to be
processed. The section shall ensure that all receipts, issues and returns / transfer
voucher raised by the stores section are finally posted in the price store ledger.
c) For clearance of imported materials, amount deposited for custom duty in the PD
account etc. Shall be cleared against individual MRRs on receipt bill of entry
d) The issue notes shall be priced on the weighted average rate basis after accounting
the last receipt of material. After ascertaining the nature of expenditure, the job for
which material is issued; an appropriate account code shall be given in accordance
with the chart of account.
e) In case of material like steel plates etc. where materials are received on actual
weight basis and the issues are accounted are on theoretical weight basis as per
sectional measurements, the quantity accounting shall be kept on weight basis. The
difference in quantity in weight basis, if any, shall be adjusted to revenue / capital
account, as then case may be, in consultation with consuming department, in case
the shortage is more than the consumption norms, the same should be recovered
from the contractor.
f) For all issue notes relating to works contracts, one copy of the price issue notes
may be sent to the work accounts section to enable them to debit the contractors
55

account. A monthly abstract also be prepared and passed on to works accounts

group for check.
g) Details for receipts and issue of materials received / issued on loan shall be
maintained by the store account section loan transactions shall be approved by the
competent authority. It is the responsibility of material department to take action to
square up the transactions within the reasonable time.
h) Inter unit transfer of material shall be accounted at cost basis freight and other
incidental charges shall be borne by the transferee unit.
i) Materials issued to contractors shall be priced at the monthly weighted average rate
and debited to materials issued to contractors account. The accounting for the
difference between issue price and recovery price provided in the contract shall be
Cleared by the accounts section dealing with the works. Recovery should be
predefined basis and must be uniform.
j) For material returned to stores, return note shall be priced by the stores accounting
section at the same rate which it was issued and the Value shall be debited to the
relevant code of stores and spares parts inventory accounts by credit to the cost
center / job number where the material is received back. The return note shall be
priced on the basis of the original issue requisition against which the material was
drawn if such reference is available, otherwise the same should valued at the
prevailing average monthly rate applicable to that material.
k) No material shall be transferred to one card to another card without giving proper
information to the stores account section. Such transfers shall be made by means of
a transfer voucher on receipt of such transfer voucher and pass adjustment entries
by debiting and crediting respective accounts.
l) Under the mechanized system of store accounting, all documents, such as MRRs
issue notes return notes and transfer vouchers shall be sent to the EDP section after
exercising the prescribed checks. The EDP section shall prepare the all accounting
abstracts with the summary figures with monthly journal entry. In addition, it shall
56

prepare the priced store ledger. Ledger abstract for all items transacted during the
month giving the opening stock, receipts, issues and past closing balance shall also
be prepared. A copy of this statement shall be forwarded to store section for
verification of the bin card balances. Discrepancy if any shall be reconciled by the
store section with the stores accounts section.
m) The price store ledger balance for each category store shall reconciled value wise
with the control account balance in the ledger wherever possible. The accounts
section shall draw out reconciliation on monthly basis. After reconciliation a
monthly material consumption statement, cost center wise, is prepared and
circulated to concerned department by the 10th of following month for verification
of its correctness and for monitoring the budgeted expenditure, if any discrepancy
is reported, the same is adjusted in the ensuring month.

Insurance of Stock & Stores

For stocks of ammonia, naphtha, general stores, bags, phosphoric acid, and finished
products held at plants, insurance shall be taken to cover the risks arising out of fire
explosion, riot, strike terrorism, malicious damage, earthquake, etc. The stock of finished
products lying at different marketing warehouses should also be adequately covered
through the warehousing agencies.
According to the value of stores and finished products keeps on varying from time to time,
insurance shall be obtained in the form of declaration policy whereby the average daily
stock for each product held during the month shall be declared to the insurers in the first
week of the next month.
According to the declaration policy, the insured amount for each product shall be stated
separately. The liability of the insurers is limited to the insured amount. At any time if it is
found that the actual stock is more than the insured amount to avoid less amount of
insurance. In case of a declaration policy, insurance premium is payable for minimum 35
% of the insured value.
Before insurance is obtained, various categories of stores shall be reviewed with a view to
select such items for which insurance is considered necessary.
57

Verification of Inventories
The officer of stores will coordinate the job of physical verification and the accounts
officer in charge shall render all assistance to ensure that the physical verification of
inventories is carried out as per the policy and the policy and the approved program. The
store department will ensure that the posting in the Kardex are updated before the
verification of inventories. Kardex contains all the information that is in the store.
The inventories are classified in three categories for verification purpose.

Raw material & Packing materials

Stores, Chemicals & Spare parts

Finished products

The stocks of raw materials, packing materials and finished products are to be verified on
quarterly basis by an independent surveyor by the society. No adjustments need be carried
out in the books of accounts unless the discrepancies in liquid raw materials and solid raw
material are in excess of 1% to 5% respectively. This is as per guidelines issued by the
head office.
In case of finished goods also the same principle applied except that no adjustments in the
books of accounts shall be made. However the stock registers shall be adjusted on the
basis of actual stock in order to replace the notional figures of stocks by more accurate
estimate based on physical verification.
The inventories for other items such as stores, spares, construction materials etc. are also
verified every year keeping in view ABC analysis of stock items value and exercise of
verification may be completed by March every year.

58

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

Value (Rs. per unit)

Quantum of Verification

Above Rs. 50,000/-

100%

10,001 to 50,000/-

70%

Below Rs. 10,000/-

25%

A team of stock verifiers shall prepare a stock verification sheet giving the kardex balance
and the physical balance of each item covered in the stock verification. After filling up the
particulars of the value and quality discrepancies with reference to the priced stores ledger
balance, the stock verification sheets shall be forwarded to the materials department for
scrutiny and reconciliation and adjustment in consultation with finance department
accepted shortage shall be processed for the approval of the competent authority.

59

RECONCILIATION AND ADJUSTMENT

After each physical verification by the custodians of inventories and suitable adjustment
action has to be taken. It is desirable to complete the physical verification work by March
every year so that reconciliation/adjustment action can be completed within the year itself.

Internal Check
1)

One set of document for receipts, issues and return of materials shall be sent to the

accounting section of finance department. Based on these documents, priced store

ledger shall be prepared for each item for stores. The material code number between
stores and accounts shall be identical. The priced store ledger shall provide value of
each receipt, Issue and return transaction along with quantity ledger. The quantity
balance appearing in priced store ledger shall serve as counter check for accuracy of bin
card balance in store which is essential for proper functioning of inventory control
system
2)

The priced store ledger shall not be maintained for large number of low value

items such as stationery, medicines, canteen stores etc. in this case the expenditure shall
be charged to the appropriate expense account at time purchase. Quantitative record
shall be kept by the concerned department and shall be produced as and when required
for audit purpose.

60

Inventory Control
Inventory control is concerned with minimizing the total cost of inventory. The three
main factors in inventory control decision making process are:
a.

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

b.

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

c.

The cost of shortage, i.e., what is lost if the stock is insufficient to meet all
demand.

The third element is the most difficult to measure and is often handled by establishing a
"service level" policy, e. g, certain percentage of demand will be met from stock without
delay.
The Inventory Management system and the Inventory Control Process provides
information to efficiently manage the flow of materials, effectively utilize people and
equipment, coordinate internal activities, and communicate with customers.
Inventory Management and the activities of Inventory Control do not make decisions or
manage operations; they provide the information to Managers who make more accurate
and timely decisions to manage their operations.
Inventory control is a systematic control and regulation of purchase and usage of materials
in such a way so as to maintain an even flow of production at the same time avoiding
excessive investment in inventories. Efficient material control reduces losses and wastage
of materials that otherwise pass unnoticed.
Inventory control is the core of material management. The need and importance of
inventories varies in direct proportion to the idle time cost of men and machinery, and
urgency of requirements. If men and machinery in the factory could wait and so could the
customers, materials good not lie in want for them and no inventory need to be carried.
But it is highly uneconomical to keep the men and machine waiting and the requirements
for modern life are so urgent that they can not wait for materials to arrive after the need for
them has arisen.
Because materials constitute a significant part of the total production cost of
the product. Thus, cost is controllable to some extent; proper planning and controlling of
inventories are of great importance. If investment in inventory will be more then the
company has to bear carrying cost and that finance can not be utilized.
61

A good inventory management policy should ensure smooth and uninterrupted supply
without making unnecessary investment of funds in inventory. This requires that inventory
management policy must balance the requirements of the following two opposing and
conflicting ends:
i)

To maintain a large quantity for smooth operation and efficient customers

services.

ii)

To maintain only a minimum possible inventory because holding costs and

opportunity cost of funds invested in inventory.

62

RATIO ANALYSIS OF IFFCO

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

may be defined as the indicated quotient of two mathematical expressions. One of the
most important financial tools which have come to be used very frequently for analyzing
the financial strengths and weaknesses of the enterprise is ratio analysis. Ratio analysis as
a technique of analysis and interpretation of financial statements. It is the process of
establishing and interpreting various ratios for helping in making certain decisions.
Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a company's financial statements. The level and historical
trends of these ratios can be used to make inferences about a company's financial
condition, its operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a company's
financial statements. A financial ratio can give a financial analyst an excellent picture of a
company's situation and the trends that are developing. A ratio gains utility by comparison
to other data and standards. Ratio analysis can also help us to check whether a business is
doing better this year than it was last year; and it can tell us if our business is doing better
or worse than other businesses doing and selling the same things.

Financial ratio analysis groups the ratios into categories which tell us about different facets
of a company's finances and operations. An overview of some of the categories of ratios is
given below.
1.

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

2.

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

63

3.

Operational Ratios which use turnover measures to show how efficient a

company is in its operations and use of assets.

4.

Profitability Ratios which use margin analysis and show the return on sales and
capital employed.

5.

Solvency Ratios which give a picture of a company's ability to generate cashflow

and pay it financial obligations.

Ratios are always expressed as a decimal value, such as 0.10, or the equivalent
percent value, such as 10%. Financial ratios allow for comparisons

between companies

between industries

between different time periods for one company

between a single company and its industry average

HOW A RATIO IS EXPRESSED?

As Percentage - Such as 25% or 50%. For example if net profit is Rs.25, 000/and the sales is Rs.1, 00,000/- then the net profit can be said to be 25% of the sales.

As Proportion

- The above figures may be expressed in terms of the

relationship between net profits to sales as 1: 4.

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

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

64

VARIOUS RATIOS FOR IFFCO

1) Inventory Turnover- This ratio indicates the number of times the inventory is
rotated during the relevant accounting period. This ratio is also called as stock
turnover ratio or stock velocity. This ratio is calculated to consider the adequacy of
the quantum of capital and its justification for investing in stock or Inventory.
Inventory turnover is used to measure the efficiency of sales. Inventory turnover is
the number of times obtained by dividing cost of sales by inventory.
(Average Inventory/Sales) x 365

for days

(Average Inventory/Sales) x 52

for weeks

(Average Inventory/Sales) x 12

for months

Average Inventory or Stocks = (Opening Stock + Closing Stock)

2
Inventory Turnover ratio-

sales
Inventory
( in crore )

Particular

2007-08

2006-07

Sales

5968.47

5554.53

Inventory

1577.10

2283.94

3.78 times

2.43 times

Inventory Turn. Ratio

Interpretation: - It is revealed from above table that the stock turnover has been
increased to 3.78 times in the year 2007-08 as compared to 2.43 times in the year 200607. It shows better control over inventory and efficiency in sales. Since IFFCO is in the
business of fertiliser manufacturing and in this sector a huge investment in plant and
machinery is required. Keeping in view the investment in Plant & machinery in this sector
for which number of spares and stores items are required to be maintained for upkeep of
the plant, the above Inventory Turnover ratio is reasonable. However, IFFCO should
efficiently use various inventory management tools to control the stock levels like ABC

65

analysis, monitoring of stock levels i.e. ROL, EOQ, Min-Level, Max-Level system of
verification of inventory etc.

Inventory Turnover Ratio

66

2)

Working Capital Turnover- This ratio establishes a relationship between

net sales and working capital. Net Current Assets are also known as working
capital instead of total current assets is being compared with the sales. This ratio
indicates the velocity of the utilization of net working capital. It indicates the
number of times the working capital is turned over in the course of a year. This
ratio is calculated as followsWorking Capital Turnover-

Sales
Working Capital

Particular
Sales
Working Capital
Working Capital Turnover

2007-08
5968.47
4404.17
1.35 times

( in crore)
2006-07
5554.53
4870.74
1.14 times

Interpretation: - As we know that working capital turnover ratio measures the

efficiency with which the working capital is being used by a firm. In the following
table the sales is increasing while on the other hand working capital is decreasing. It
appears from the above calculation that Working Capital Turnover ratio has been
increased to 1.35 times in the year 2007-08 as compared to 1.14 times for year 200607. It shows a better utilization of working funds in the business. Hence IFFCO is
using its working capital in a better way.

67

Working Capital Turnover

68

3)

Current Ratio- The ratio of current assets to current liability is called current

ratio. This ratio is an indicator of the firms commitment to meet its short-term liabilities.
Current assets include cash and other assets convertible into cash during the operating
cycle of the business. Current liabilities mean liabilities payable within a years time. An
idle current ratio is 2:1.The ratio of 2:1 is considered as a safe margin of solvency. A very
high current ratio would indicate the less efficient use of funds while a poor current ratio is
a danger signal to the management.

Current Ratio - Current Assets

Current Liability

Particular

2007-08

2006-07

Current Assets

5775.74

6071.97

Current Liability

1371.57

1201.23

Current Ratio

4.21:1

5.05:1

Interpretation: - It appears from the above table that the current ratio of three
consecutive years2004, 2005 and 2006 is 2.84:1, 2.36:1, and 3.49:1. As general rule the
ideal current ratio is 2:1 and we can see that the current ratio for three years is above idea
ratio. So we can say that the liquidity position of the concert is sound and it is able to
meet its short term debts and obligations.

69

Current Ratio

70

4) Cash Ratio - This ratio measures the relationship between cash in hand and
current assets. A very high cash ratio indicates major items of current assets & may be a
poor indicator of profitability because cash by itself does not earn any profit. Ideally the
proportion should be kept as low as possible. But some amount of cash for daily
requirements of the firm should be kept.

Cash Ratio

Cash in Hand
Current Assets

Particular

2007-08

2006-07

Cash in Hand

243.32

330.84

Current Assets

5775.74

6071.97

0.04:1

0.054:1

Cash Ratio

Interpretation:Form the above it can be seen that cash ratio is almost stagnant from year to year. It shows
that the concern is efficiently using and monitoring cash for day to day transactions. But
this increment in ratio is not satisfactory. Thus management should do some efforts to
increase the cash ratio.

71

Cash Ratio

72

5) Solvency Ratio- This ratio highlights upon the long-term solvency of the concern
and this ratio shows the relationship between the total assets and total liabilities of the
concern. This ratio is obtained by dividing total assets by total liabilities. Total assets
include fixed assets and current assets. Total liabilities include both long term and
short-term liabilities.
Solvency Ratio-

Total Assets
Total Liabilities

Particular
Total Assets

2007-08

2006-07

12354.26

11842.07

Total Liability

1795

1717

Solvency Ratio

6.88:1

6.89:1

Interpretation:In the year 2006-07 the total assets and total liability was 11842.07 and 1717 respectively
while in the 2007-08 the total assets and total liability was 12354.26 and 1795
respectively. Form the above it can be seen that the concern is having a sound position. Its
total assets have increased and liability has also increased. Due to it solvency ratio has not
so much impact of it. Therefore the solvency position is good.

73

Solvency Ratio

74

6) Stock to Current Assets Ratio- This ratio expresses the relationship between
Stock and Current Assets.

Stock to Current Assets-

Stock

Current Assets
Particular
Stock
Current Assets
Stock to Current Assets

2007-08
1577.10
5775.74
0.27

2006-07
2283.94
6071.97
0.37

Interpretation: The following calculation shows that stock to current asset ratio is
decreasing. It shows that current assets and stock both are decreasing. Thus it is not a bad
situation because a company always wants to retain stocks according the requirement. It
does not want to do over investment in stocks. Every company prefers money in liquid
form rather than over investment.

75

Stock to current asset ratio

76

7) Raw Material Turnover Ratio- The raw material turnover ratio represents the
relationship between raw material consumed and average stock of raw material. Here
average stock of raw material is the average of opening stock of raw material and closing
stock of raw material.
Or
Opening stock of raw material + closing stock of r.m.
Average stock of raw material =

Raw material consumed

Raw Material Turnover = Avg. stock of raw material

Year

2007-08

2006-07

Raw material consumed

950.80

551.27

Avg. stock of raw material

751.035

706.04

Raw Material Turnover

1.26

0.780

Interpretation: Here Raw material consumed is 551.27 in 2007-08 and 950.80 in

2006-07. Avg. stock of raw material is 751.035 in 2007-08 and 706.04 in 2006-07. The
calculation shows that the raw material turnover is 0.780 in 2007-08 and 1.26 in 2006-07.
It indicates that raw material turnover is increasing because of more production.
Production is increasing because of increase in demand. Thus it is a favorable situation.

77

Raw Material Turnover

78

8) Owned Capital Turnover: It represents the relationship between sales and

shareholders fund.

Owned Capital Turnover =

Sales
Shareholders fund

Year

2007-08

2006-07

Sales

5968.47

5554.53

Shareholders Fund

3688.66

3641.84

Owned Capital Turnover

1.61

1.52

Interpretation: In the following table the sales is 5968.47 for the year 2007-08 and
5554.53 for the year 2006-07. Shareholders fund is increasing by 413.94 crores. As a
result the owned capital turnover is increasing by 0.09. it clearly shows that the company
is earning profit.

79

Owned capital turnover

80

9) Profit Before Tax To Sales- The ratio expressed the relationship between Profit
Before Tax and Sales.

Profit Before Tax to Sales- Profit Before Tax *100

Sales
Particular

2007-08

2006-07

Profit before Tax

380.52

251.25

Sales

5968.47

5554.53

P.B.T. to Sales

0.06 %

0.04 %

Interpretation: The following calculation shows that profit before tax to sales ratio is
increasing by 0.02 %. It is due to increase in profit before tax and sales. It indicates that
profit is increasing because of sales. Thats why profit before tax is also increasing. If we
shall do our efforts for increasing the sales then the profit for the shareholders will
increase.

81

P.B.T. to Sales

82

10) Capital Turnover- Sometimes the efficiency and effectiveness of the operation is
judged by comparing the sales with the amount of capital invested in the business.
Capital Employed is either equal to Shareholders Fund plus Long Term Loans or
equal to Total Assets minus Current Liabilities. This is calculated by establishing the
relationship between sales and capital employed.
Capital Turnover-

Sales

Capital Employed
Particular

2007-08

2006-07

Sales

5968.47

5554.53

Capital Employed

5727.62

5752.21

1.04 times

0.96 times

Capital Turnover

Capital Employed = Equity Share Capital + Profit + Long term loan + Reserve & Surplus
= 423.93+3264.73+1781.83+257.13
= 5727.62

Interpretation:From the above it is clear that Capital Turnover ratio has been increased 1.04 from 0.96. It
shows that investment in Total assets as compared to the previous year has decreased even
after that sale is increasing. Though the capital turnover is good in the year 2007-08 as
compared to the year 2006-07. While calculating the return on investment ratio we have
seen that IFFCO has made huge
Investment in the assets in the year 2006-07 against which the return is expected in the
coming years. We hope this ratio will also improve in the coming years when the pay back
of the investment will start.

83

Capital Turnover

84

FINDINGS OF THE STUDY

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

important for the organization to manage its inventory through effective inventory
control systems. The findings of studying inventory management of IFFCO are as
follows:
1) There is used one inventory software (PSL) by the employees for efficient
inventory management and to remove the paper work. But there are some
employees including managers who do not know how to operate that inventory
software while it should be known by all the employees that are related to
inventory management segment.
2) It was observed one thing that there was not coordination among the employees
even between those who lies in the same level. This feeling of human
characteristics is normally seen but it is not good for the organization. For the
better productivity there should be proper coordination. And through the
coordination an organization can manage its all functioning including inventory
management.
3) IFFCO is a semi-government organization. So there were some employees who
have got the senior position because of experience. Even after having experience
those people were not able to operate all the functions and work related to
inventory. It was due to change in the technology.
4) Firstly in IFFCO paper work pattern was followed but now it has converted in soft
form that is computers are provided to the employees. Now the kardex and other
documents and details are entered in the computer as well as in the files. But due to
lack of knowledge about new software, the working is not proper.
5) The inventories of IFFCO are divided into three parts that areI.

Inventory of raw materials

II.

Inventory of finished goods

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III.

Inventory of spares
Here I have studied the inventory of spares. Because the raw material that
is used in IFFCO are gases and the measurement of its inventory level is
very typical.

6) In the IFFCO the inventory are divided into spares and generals. Generals are those
parts which are used normally in various machines, offsite while spares are unique
to its machines. There are two stores in IFFCO. In one store the inventory of Aonla
Unit 1 is stored while in other catalysts and various chemicals are stored. For the
transfer of spares from one store to another, a voucher is used that is store transfer
voucher (STV).
7) It clears that the person who raises the indent for the required material is known as
indentor. Indentor plays an important role in this. The indentor checks whether that
material that has purchased is according to his requirement or not. Indentor can be
any person.
8) Before the purchasing of the material, firstly enquiry takes place. This enquiry can
be done in two ways. Through the e-procurement or manual. After this enquiry a
QCS (quotations comparative statement) is prepared in which normally technically
acceptable lowest bidder is chosen. Thus the purchasing process completes and the
working of store department starts. Now the storing and issuing is the
responsibility of stores.
9) There is followed a coding pattern in IFFCO that is good for the proper inventory
management. It helps the stores employees in identifying the spares and generals.
This coding is of 12 digits. It avoids the confusion. Hence it is good for the
organization to do coding of the inventory. It highlights the inventory management.
10) There are various formats as STV, ISIRV, DCSRV, SAI, SIV etc which are used for
different purposes as for issuing the material from the store, store receipt voucher
(SRV) is used, for the adjustment of the materials, the store adjustment voucher
(SAV) is used.
11) The whole study shows that there is a good inventory management system but
nothing is perfect that why there are also some limitations. In IFFCO a history
86

book of spares is used. It is prepared in both the form as a soft copy and a hard
copy.
12) For the controlling of the inventory a technique is used in IFFCO that is ABC
analysis. In ABC analysis spares and generals are divided in three categories on the
basis of their values. Some items have 70% value while their quantity is 20%. The
spares whose value comes under 20%, its quantity is present in 70%. While there
are some spares whose value is 20% as well as quantity is also 20%.
13) For the verification of inventories a technique is used in which the material whose
value is more is more than 50000, are verified 100%, the materials whose value
comes under 10001 to 50000 are verified 70% and the remaining materials whose
value is less than 10000 are verified 30%.
14) There is a company IFFCO- TOKIO General Insurance Company which is
responsible for the insurance of damaged and short materials. Firstly there were
different cooperatives which were associated with this task.
15) As we know that with the passage of time, some items becomes outdated or of no
use. They are known as obsolete items. The items which do not move up to 7 years
are not valued according to its original value. Theres 40% value is written off
while they are valued at the 60% of their face value. The items which do not move
up to 7 to 10 years, are valued at 55% of their original value while 45% of its value
is written off. And the items which do not move more than 10 years, are valued at
the 50% of their face value and 50% is written off.
16) In IFFCO to ensure the availability of items or spares, they are inventoried. There
are decided various levels which shows the level of items that are stored in it.
These levels are minimum level, maximum level and reorder level. Re-order level
is that level at which new order is placed. These three levels are different for
different items. The item which are frequently used that is generals have the high
level of reorder.
17) Effective inventory management enables an organization to meet or exceed
customers expectations of product availability while maximizing net profits or
minimizing costs. And the annual report shows that the inventory has decreased. It

87

shows that they are managing inventory in a better way due to which it has
decreased in compare to last year.
18) In IFFCO there is three type of inventory but IFFCO does not preserve the finished
goods inventory. IFFCO is a cost centre. Hence they do production but just after
accomplishing the whole process i.e. after packing the urea, they transfer it in the
rail bogie and send it to its marketing channel. And the responsibility of Bareilly
unit completes. They have owned its own rail bogies and engine.
19) According to balance sheet It was found that the production has increased in
compare to last year because of capacity enhancement and increased demand.
Thats why the consumption of raw material as well as the inventory of raw
material has also increased. It is good for the organization.
20) In IFFCO the stock has decreased and current assets have also decreased. It shows
that the management has handled the inventory in the better and efficient way. It is
good for the organization as well as for the management.
21) Whenever the purchase department raises the tender then the enquiry is done in
two ways. First one is single stage, the items where there is no more chances of
technical deviation then the checking is done before loading the material and
indentor checks it later. While in two stage i.e. the stage where there are more
chances of technical deviation, checking is done before loading and after receiving
the materials. Expert performs this checking.
22) The ideal current ratio is 2:1 while the calculation as per the balance sheet shows
that the current ratio is more than two times of ideal ratio. It shows that
management of IFFCO is handing the all inventory, sales, and machines in a great
way. Even in the current year the current ratio has decreased in compare to
previous year but the organization is even in a good position.
23) The cost of production of urea is much more than its selling price. This difference
in the cost is provided by the government that is subsidy from government.
The whole report clears that the management of IFFCO is
handling the inventory in efficient ways even there is also some drawbacks but
even after the management is running the organization in a good way. The annual
88

reports shows that the inventory is decreasing in compare to last year and there is
no interruption in the production which shows the unavailability of inventory. It is
a indication that management is handling the inventory in a better way in compare
to previous year. And the investment has decreased in the inventory. This capital
may be used in some other productive work.

89

SUGGESTIONS

1) Every week a report should be produced listing the status of every product that has
been in stock for less than six months. The report should list the following
informationa. Items number and description
b. Total consumption of items ( in units)
c. Current-on-hand quantity
d. Minimum stock level of the item
e. Maximum stock level of the item
f. Re-order level of the item
g. Any new item that is required
h. Reason why that item was added to stock
2) Detailed record should be maintained by the management of store as well as
purchase department, for new stock items that do not meet six months
consumption. Because in the organization the number of obsolete items has
increasing because of outdated technology. Due to which the store department has
to bear the maintenance cost and carrying cost of obsolete items.
Thus the management should review the record time to time.
3) The management of IFFCO should conduct some development programmes for the
knowledge of employees. IFFCO conduct various programmes for the farmers
knowledge and their awareness but not for their employees. As I have observed
that there were some managers who do not know the operation of inventory
software due to which the working was hampering. And the remaining employees
have to take extra load of that work. It should not be there.

90

4) The management should not add new inventory. If it is deciding to store any new
inventory then the management should give the reason why management is going
to add new inventory. Thus the reason should be clearly stated.
5) If the cost of any inventory is high, then the management should find the substitute
material to decrease the cost of inventory.
6) The management should provide the necessary information to the supplier. As I
have noticed that the management of IFFCO tries to reserve its all information.
Thus the management should provide the necessary information to the supplier so
that the supplier can send the materials according to the requirement.
7) The business owner will need to do an initial count of everything in stock. The
count of all items in stock should be completely documented as well as all items
that are ready for sale. A recount can ensure accuracy. This will give the business
owner a starting point for inventory tracking. At this point, it may prove to be an
advantage for the business owner to use some kind of inventory tracking software
application.
8) When new inventory is added to existing inventory, the first thing a business owner
should do is to check it for quality. Are any of the items dented or damaged? If so,
they will need to be returned so that the business can get appropriate credit
damaged items do no good sitting on storeroom or warehouse shelves.
9) The new inventory should be added to the count of the existing inventory,
particularly in the business documentation. This will help the business owner to
keep an adequate count of what is in stock.
10) When ordering it is advised not to over order or to under order stock; however, this
does not mean that the business owner shouldnt take full advantage of whats
available to them in terms of sales and discounts. If items bought in bulk are less
expensive, it is sometimes a good idea to purchase them that way. Essentially, the
business owner will need to make a judgment call and take the perish-ability of the
product into consideration.
11) When ordering stock it is important that a business owner does not substitute
quality for quantity. In other words, cheap inventory is not necessarily good
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inventory and buying less expensive products to increase ones inventory could
result in profit loss. No matter what measures of inventory control that one puts in
place, its always imperative that quality products remain the first and foremost
concern of the business.
12) Getting the right amount of inventory is going to require a bit of speculative
projection on behalf of the business owner. The business operator is going to need
to guess how much they think they may sell in the coming months in order to order
the amount they need. By tracking inventory on a weekly or monthly basis, the
business owner will be able to identify predictable patterns of product use and sale.
They can then base their ordering process on such predictions. The end result is
that over stock and under stock of inventory is minimized.
13) Diligent and regular tracking of inventory is recommended at all times. Further,
when counting inventory in a warehouse or business location it is imperative that
all counts are accurate. What good is inventory tracking if the calculations are all
wrong? Essentially, inaccurate calculations of inventory result in significant losses
of time and money for a business.
Thus the calculation should be accurate and right. There should not
be any deviation.
14) With so many other things that the business owner should be responsible for how
will they manage the time for inventory control? Small inventories are usually
fairly easy to manage, but what about warehouses and larger supplies? So the
owner and the store manager should take care of it.
15) Inventory management is not a process that can or should be avoided; it may be a
good idea for business owners to hire someone to be responsible for large
inventories. The management should hire one inventory consultant. Because he can
give better suggestion for inventory control. Inventory consultants know in a better
way how to handle and in how much quantity they should be stored.
16) The manager should be responsible for weekly or monthly stock counts and for
ordering and reordering products. This allows for the business owner to focus on
other aspects of the business operation. Thus the manager should take care of it.

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17) The management should follow all the rules and instructions. Documents should be
released at the issuing and other formalities. The management including the
employees should be aware of all functions of software.
18) The management should do contract with the inventory consultancy. An inventoryconsulting agency can provide a business owner with a complete print out of their
current inventory. Thus, business owners have access to vital business documents
and the information they provide. When it comes time to insure the business or to
run an inventory check, a business owner can feel confident in knowing precisely
what they are expected to have.
Some inventory consulting agencies will actually handle all of the
ordering for the business. While this may seem like too much control to give to
another agency, some business professionals like they idea of relying on a
company to manage inventory. It leaves the business operator free to manage other
aspects of the business.
19) Another factor that every business owner must consider is the cost to insure
inventory. Lets face it; the bigger the inventory the higher the premiums are for
insurance. Paying out additional funds for inventory can prove rather costly in the
long run. Again, to save businesses money, good inventory and warehouse
management are a must. Thus the management should take care that they should
not order too much heavy inventory. If yes then it should be insured.
20) The store manager must decide firstly what products they will need in the future
and precisely how much product to order. Thus they should order according to the
requirement.
21) As we know that there is coding system in the IFFCO. They make the process of
inventory simple. Items that are sold can be automatically subtracted from the
existing count. Some software applications automatically create and print a
reordering document. This type of software should be installed in IFFCO. Even
there is PSL inventory software but the entry should be renewing time to time.
22) The consumption of all materials do not remain same overall the year. Thus the
maximum level, minimum level and reorder level should be review time to time.
Depending on the situation these levels should be flexible.
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23) The purchasing process is directly related to the consumption and it can be easily
recognized only by reviewing their level in the store time to time. Before
purchasing any material first of all the purchase department should conduct
enquiry to know whether that material is present in the store or not. If present then
in which amount that material is present. It will help the management to reduce the
overinvestment in the inventory.
24) The materials which are not in use due to outdated technology, they should not be
kept because they cover the unnecessary place of the stores. I have seen that there
was a crane in the IFFCO and it was of no use because of outdated technology. But
even after that they have kept it. They should sell it to get some money to reduce
its maintenance and carrying cost.
If the management of IFFCO will follow these instructions then it
can handle or manage the inventory in a better way.

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BIBLIOGRAPHY

1)

www.businessin.com

2)

www.mapxl.com

3)

www.invatol.com

4)

www.inventorymanagement.com

5)

www.effectiveinventory.com

6)

www.toolwatch.com

7)

www.opsinventory.com

8)

Business world magazine

9)

Business today

10) India today

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QUESTIONNAIRE

1) How is the Item coding done in IFFCO?

2) What is the normal classification methods of inventory followed in IFFCO?
3) What are the documents received along with the consignment.
4) How is the sampling for inspection done?
5) At what stage of goods arrival, inspection is done?
6) What are the internal documents made from the time of receiving materials till
goods are moved to final location?
7) How do you handle rejections? Do you send materials back?
8) Do you allow sorting / repair? If yes, where is repair carried out? If repair is
carried out at vendor site, what are the documents made for goods transfer and
receipt?
9) Do you have expiry dates for the materials?
10) Do you make material requests to stores for issue of raw material?
11) Do you perform Inventory adjustments, value based or quantity based?
12) Do you perform Inventory receipts?
13) What the various types of analysis used for inventory management?
14) Do you use re-ordering methods?
15) How do you determine the ordering quantity?
16) Do you perform 100 % item checks or random? If Random, what are the
criteria for selecting items?
17) Which inventory software is used for the convenience in inventory control?
18) On what basis inventory is divided into generals and spares?
19) How much inventory is stored in form of spares and generals in IFFCO?
20) Which pattern is followed for the payment against purchase?

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