Word Project

PROJECT REPORT
INVENTORY MANAGENENT
ON
INDIAN FARMERS FERTILIZERS CO- OPERATIVE LTD.
FOR THE PARTIAL FULFIILMENT OF REQUIREMENT OF SUMMER
INTERNERSHIP
SUBMITTED IN
SUBMITTED TO
PROF. SHYAM AGRAWAL
FINANCE FACULTY MIMS
SUBMITTED BY VIVEK AGRAWAL
PGDM (2009-11) ROLL NO: 091110153
SUBMITTED BY
VIVEK AGRAWAL PGDM (2009- 11)
TO WHOMSOEVER IT MAY CONCERN

This is to certify that the Summer Project Study Report Title INVENTORY
MANAGEMENT submitted by Mr. VIVEK AGRAWAL as partial fulfillment of
requirement of the two year PGDM course is a bonafide work carried out by student at
our Institute.
This Summer Project Study is his original work and has not be submitted to any other
University/Institute.
Project Mentor Prof. (Dr.) ANUPAM NARULA Prof. – SHYAM KUMAR
AGRAWAL Director-Academics
Date-
CONTENTS
 ACKNOWLEGDEMENT
 DECLARATION
 ABSTARCT
 INTRODUCTION OF COMPANY
 PLANT UNITS
 INVENTORY MANAGEMENT
 ROLE OF PURCHASE
 WAREHOUSE MANAGEMENT
 DATA ANALYSIS
 CONCLUSION & SUGGESTION
 BIBLIOGRAPHY
DECLARATION
I am VIVEK AGRAWAL, Roll no. 091110153, a student of PGDM fourth
Trisemester MANGALMAY INSTITUTE OF MANAGEMENT STUDIES, Greater
Noida, hereby declare that the summer training Project report titled “INVENTORY
MANAGEMENT” is the original
Work and not presented in any other university.
Place:
Date: (Vivek Agrawal)
ABSTRACT
In every organization, management is that part of the organization, which is concern
with planning, organization, directing and controlling of various marketing activities
to attain the business objectives. It is the science and art of preparing plans and
organize, then as well as direct the human being.
As a integral part of the curriculum, all the PGDM students are required to undergo a
practical training in some industry. The main objective of this training is to
supplement student’s theoretical knowledge with exposure to practical operation of an
organization. This provides the student with better understanding of all functional
areas of management and skills applied in those functional areas.
In pursuance of the said requirement, I had my summer training at “INDIAN
FARMERS FERTILIZERS COOPERATIVE LTD”, one of the biggest producers of
chemical fertilizers in Asia.
The topic assigned to me for my project was “Inventory Management”. In IFFCO, I
had a contrast of both happiness and anxiety and had undergo difficulties also but with
the immense assistance proper guidance and enough encouragement from IFFCO
officials and staff, the work went of smoothly and systematically.
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 8
INDIAN FARMERS FERTILIZERS COOPERATIVE LIMITED

During mid- sixties the co-operative sector in India was responsible for distribution of
70 per cent of fertilizers consumed in the country. This Sector had adequate
infrastructure to distribute fertilizers but had no production facilities of its own and
hence dependent on public/private Sectors for supplies. To overcome this lacuna and
to bridge the demand supply gap in the country, a new cooperative society was
conceived to specifically cater to the requirements of farmers. It was an unique
venture in which the farmers of the country through their own cooperative society
created this new institution to safeguard their interests. The numbers of co-operative
societies associated with IFFCO have risen from 57 in 1967 to 38, 155 at present.
Indian Farmers Fertilizers Co-operative Limited (IFFCO) was registered on
November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the
Multistate Cooperative Societies act 1984 & 2002, the Society is deemed to be
registered as a Multistate Cooperative Society. The Society is primarily engaged in
production and distribution of fertilizers. The byelaw of the Society provide a broad
frame work for the activities of IFFCO as a Cooperative Society.
IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant at
Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up at
Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was
commissioned in 1988.
In 1993, IFFCO had drawn up a major expansion program of all the four plants under
overall aegis of IFFCO VISION2000. The expansion projects at Aonla, Kalol, Phulpur
and Kandla have been completed on schedule. Thus all the projects conceived as part
of Vision 2000 have been realized without time or cost overruns. All the production
units of IFFCO
have established a reputation for excellence and quality. A new growth path has
been chalked out to realize newer dreams and greater heights through VISION 2010
which is presently under implementation. As part of the new vision, IFFCO has
acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of these
expansion projects and acquisition, IFFCO's annual capacity has been increased to
3.69 million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.
The distribution of IFFCO's fertilizer is undertaken through over 38155 co-operative
societies. The entire activities of Distribution sales and promotion are co-ordinate by
Marketing Central Office (MKCO) at New Delhi assisted by the marketing offices in
the field. In addition, essential agro-inputs for crop production are made available to
the farmers through a chain of 158 farmers service centre (FSC). IFFCO has promoted
several institutions and organizations to work for the welfare of farmers, strengthening
cooperative movement, improve Indian agriculture. Indian Farm Forestry
Development Cooperative Ltd (IFFDC), Cooperative Rural Development Trust
(CORDET), IFFCO Foundation, Kisan Sewa Trust belong to this category. An
ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to
promote e-culture in rural India. IFFCO obsessively nurtures its relations with farmers
and undertakes a large number of agriculture extension activities for their benefit
every year.
LOGO OF IFFCO
The Logo any organizations is very important by which the company is
Known to everyone or that is identity of the company. After one year of establishment
in 1968 the organization has decide to make Logo of IFFCO. The executive of the
company said that which can be easily fit any place or easily changeable according to
the place & made by simple geometrical method. So the Logo is made by at last Mr.
M.I.Gupta chief visualize developer is like that
Logo’s ratio is 1:2:5 and the color are green. The rectangle shows that the Indian
economy is depend upon the agriculture & green color shows the faith of the farmers,
they believe that after Using the urea their fields will always be green, the remaining
white color shows that the quality of the IFFCO’s product is very good & oval shape
is meant for prosperity.
VISION AND MISSION OF IFFCO

VISION:
To augments the increment income of farmers by helping them to increase their crop
productivity through balance use of energy efficient fertilizers, maintain the
environment health and to make co-operative societies economically & democratically
strong for professionalized services to the farmer community to ensure and
empowered rural India.
MISSION:
• To provide farmers high quality fertilizers in right time and in adequate quantities
with and objectives to increase crop productivity.
• To make plant energy efficient and continually review various scheme to conserve
energy.
• Commitment to health, safety, environment and forestry development to enrich the
quality of community life.
• Commitment to social responsibility for strong social fabrics.
• To institutionalized core values and create a culture of a team building,
empowerment and innovation which would help in incremental growth of
employees and enable achievement of strategic objectives.
• Foster a culture of trust, openness and mutual concerns to make working a
stimulating and challenging experience for state holders.
• Building a value driven organization with an improved and responsive customers
focus. A true commitment to the transparency, accountability and integrity in principle
and practices.
VISION 2015
In pursuit of its growth and development, IFFCO had embarked upon and successfully
implemented its cooperate plan “Mission 2005” and “Mission 2010”. These plans
have resulted in IFFCO becoming one of the largest producers and marketers of
chemical fertilizers by expansion of its existing units, setting up joint venture
companies overseas and diversification into new sectors.
IFFCO has now visualized a comprehensive plan titled “VISION 2015” which will be
guided by the following objectives:
• Production of fertilizers through expansion of existing units. \
• Setting up of fertilizers production facilities in India and outside the country through
joint ventures.
• Diversification into other profitable sectors.
• Strengthening its raw material sourcing through strategic joint ventures in India
and abroad.
• Strategic alliances through IFFCO consortium.
ISO CERTIFICATION:
IFFCO has been giving continuous thrust to quality movement in all functional areas.
The Kalol unit was the first in the fertilizers industry to receive the ISO- 9002
international certification for quality assurance in production, installation and services
in august 1996, and this was re-certified from time to time. Phulpur units were also
certified by ISO-9002 international certificate in July 2000. Both the Kalol and
Phulpur units were considered by M/S bureau VERITAS quality international (BVQI)
for their quality system and awarded the certificate as per new ISO 9001-2000. The
Kalol unit has been upgraded to ISO 9001-2008 and ISO 14001-2004 and OHSAS
18001-2007 has also been included. The Aonla unit has received international
certifications ISO 9001-2000, ISO 14001:2004 and OHSAS 18001: 2007. The
adoption of an integrated management system combining all the above systems is also
in progress. The Kandla unit had received ISO 14001: 2004 certification.
FINANCIAL PERFORMANCE
As per its tradition, the societies has again exhibited an impressive financial
performance in all its major parameters, namely, Revenue growth and Resource
utilization, testifying to the robustness of its corporate strategies of creating multiple
drivers of growth in spite of constraints in the availability of raw materials, the Global
economic meltdown and inordinate delays in receipt of large subsidy amount of
government of India.
The society achieved the highest ever sales turnover of Rs 32933 crores. This
represents an increase of Rs 170 % over the previous year. While the sales volume of
fertilizer materials increased by 20% to Rs 112.58 lacs MT fertilizers during 2008-09,
as against 93.24 lacs MT in the previous year, the major increase in the sales turnover
was on account of substantial increase in the commodity prices.
DIVERSIFICATION
IFFCO-TOKIO General insurance co. limited pursuant to IFFCO’s plan to diversify
into areas other than fertilizers, IFFCO & TOKIO marine and fire insurance company
limited. Japan established a joint venture known as IFFCO-TOKIO GENERAL
INSURANCE CO. LTD (ITGI) for undertaking general insurance business in India.
IFFCO has subscribed to 51% equity in the share holding of ITGI followed by
KRIBHCO with 20% and Indian Potash ltd. With 3% and 26% equity has been
subscribed to Tokyo – marine and fire insurance co. Ltd.
INFORMATION AND COMMUNATION TECHNOLOGY

IFFCO has set up a hybrid wide area network (WAN) connecting its head office, all
production units, all zonal, state and area marketing offices using leased lines, VASTS
and ISDN lines. The hub of the networks is the Resource Centre, Gurgoan. The WAN
has been integrated with LAN at these offices and has become a lifeline of the
organization for messaging, data transfer, online replication, voice communication,
access to various remote applications and troubleshooting. Robust security with
firewall protection to check unauthorized access has been setup.
To provide uptime of WAN links near to 100 % for critical applications, for example,
dispatch, e-procurement, sales and distribution systems etc, additional backup 2 Mbps
links have been provided to all the units and the head offices, Delhi, with a redundant
link to the township of Kandla unit. These are in addition to the links from BSNL and
AIRTEL.
HUMAN RESOURCE MANGEMENT SYSTEM (HRMS)
 Suite of 25 applications covering complete life cycle of an employee from
recruitment till retirement including post retirement benefits.
 Integration with accounts.
 Replication/ sharing of data amongst all units/ office for consolidation , monitoring
& MIS
 Bi-lingual report facility for employee communication.
 Unique ID for all employees.
 Data gets replication to other units in case of transfers, promotions etc.
PROFILE OF PRODUCTS AND SERVICES

1. UREA
IFFCO's Urea is not merely a source of 46% of nutrient nitrogen for crops, but it is an
integral part of millions of farmers in India. A bag of IFFCO's urea is a constant
source of confidence and is a trusted companion for Indian farmer.
2. BIO – FERTILIZERS
A biofertilizer unit was established at Cooperative Rural Development Trust, Phulpur
(Uttar Pradesh) in 1996 - 97 and other at Kalol (Gujarat) in 2003-04 with an annual
capacity of 75 MT and 165 MT respectively of different cultures such as Rhizobium,
3. AMMONIUM PHOSPHATE SULPHATE
It is the most widely used fertilizer in the country. It is a white crystalline salt,
containing 20 to 21 percent ammoniac nitrogen and 17 percent Phosphates. Being
soluble in water, it acts quickly, but despite its high solubility, its nitrogen is not
readily lost in drainage, because the ammonium ion is retained by the soil particles. it
is, therefore, very suitable for wet-land crops
4. NPK (Nitro-Phospho-Potassium)/DAP (Diammonium Phosphate)
As far as Indian farmer is concerned, IFFCO's NPK/DAP is a source of crucial
nutrients N, P, K for the crops. The two grades of NPK produced by IFFCO, 10:26:26
and 12:32:16, indicating the content of N, P, K proportion, are tailor made to supply
the exact composition required for replenishment of the soil.
IFFCO ASSOCIATES AND SUBSIDIARY COMPANIES

1) IFFCO-TOKIO General insurance company private ltd.
2) IFFCO Sanchar private ltd.
3) IFFCO Chhattisgarh power ltd.
4) Indian Farm Forestry Development Cooperation Ltd
5) Cooperative Rural Development Trust
6) Oman Indian Fertilizers Company SOC, Oman
7) National Commodity And Derivative Exchange Ltd
8) Indian Potash Ltd
9) Jordan Indian Fertilizers Ltd
10) Kisan International Trading F Z E, Dubai
11) IFFCO Kisan SEZ
12) Legend International Holding
13) IFFCO Kisan Bazaar Ltd
14) Industries Chimiques DU Senegal, Senegal
15) National Collateral Management Services Ltd
16) IFFCO Foundation
INDIAN FARMERS FERTILIZERS COOPERATION LIMITED
Page 21
PERFORMANCE HIGHLIGHTS 2009-10

Highest Production of fertilizers
Production of NPK/DAP/NP
Highest sales of Urea
Profit before TAX
Total turnover
Highest Marketing productivity
81.98 lacs MT
(Previous best 71.68 lacs MT in 2008-09)
38.74 lacs MT
63.35 lacs MT
Rs 567.28 crores
(best PBT Rs 807.09 crores in 2002-03)
Rs 16808 crores
(previous best Rs. 32933 crores in 2007- 08)
7885 MT per employee
(Previous best 7397 MT in 2007-08)
Highest Production of Urea 43.24 lacs MT
Highest sales of Fertilizers 118.27 lacs MT
Highest sales of NPK/DAP/NP 54.92 lacs MT
(Previous best 53.89 lacs MT in 2008-09 )
Profit after TAX Rs 401.10 crores
(best PAT Rs 557.21 crores in 2002-03)
Plant Productivity 1608 MT per employee
(Previous best 1699 MT in 2005-06)
INTRODUCTION TO THE PLANT UNITS OF IFFCO

DEPARTMENT OF IFFCO PLANT UNITS
IFFCO department unit is divided into following parts:
• Ammonia plant
• Urea plant
• Power generation plant
• Off site
• Product handing plant
Ammonia Plant
There are 2 plants of Ammonia, Ammonia-I and Ammonia-II. Each ammonia plant is
designed 1350 MTPD liquid Ammonia.
Raw –material, for producing Ammonia is NATURAL GAS.
PRODUCTION PROCEDURE
Hydrogen and Nitrogen are mixed in the ratio 1:3 to produce Ammonia N113. Source
of nitrogen gas is supplied from GAIL (Bombay High). These gases are mixed with
stream and then send to primary reformer, further refining is done as secondary
reformer where we add air to it. Hot gas from secondary reformer is cooled by heat
recovery plant. Now this process gas is introduced to shift converters. Here CO is
converted to CO2, and then gas sends it to G.V CO2 removal tanks, where CO2 is
removed. This CO2 is then sent to Urea plant to produce Urea.
UREA PLANT
Physical and chemical properties:-
Molecular weight = 60.25
Melting point = 132.60
Boiling point = decomposes at atmospheric pressure. USES
• As fertilizers in agriculture.
• As cattle feed.
• As an important raw material of industrial household product.
MATERIAL DEPARTMENT
Materials are the most important inputs of any business firm organization. Proper
handling and control of material inputs ensures the smooth functioning of plant.
Material management included the procurement issuance and control of material in
right quantity and at right time to facilities the production function.
From this we can gather that material management includes 2 important functions: •
Purchasing.
• Storing and control of materials.
PERFORMANCE OF PLANTS
Production:
Since its inception, the plants have cumulatively produced 1109.03 lacs MT fertilizers
materials compromising 671.70 lacs MT of urea and 437.33 lacs MT of NPK/DAP up
to the period ending 31st march’09 . During the year 2008-09, IFFCO has produced
highest ever 71.68 lacs MT of fertilizers consisting of 40.68 lacs MT of Urea and 31
lacs MT NPK/DAP.
UNIT
2008-09
2009-10
PRODUCTION (LACS MT)
CAPACITY UTL. (PER CENTAGE)
PRODUCTION (LACS MT)
CAPACITY UTL. (PER CENTAGE)
UREA
Kalol
5.60
102.8
6.00
110.2
Phulpur –I
6.63
120.3
7.23
103.5
Phulpur – II
8.40
97.2
10.00
100.0
Aonla – I
9.87
114.1
10.00
100.0
Aonla –II
10.18
117.8
10.01
100.0
Sub Total
40.68
110.3
43.24
101.9
NPK/DAP
Khandla
17.94
74.3
23.74
98.3
Paradeep
13.06
68.0
15.00
78.1
Sub Total
31.00
71.4
38.74
89.4
Total Production
71.68
89.2
81.98
95.6
Sales Performance
The rain in the current year was not very conductive from agriculture point of view.
The food grains production in the year 2008-09 is estimated at about 228 million
tonnes as against 247 lacs tonnes in 2007-08. The fertilizers consumption in the
country during 2008-09 is estimated at 247 lacs tonnes of NPK as against about 226
lacs tonnes as against 226 lacs tonnes of NPK achieved during 2007-08 representing
9% increase.
SALES OF FERTILIZERS MATERIAL
MATERIAL 2009-10 2008-09

UREA -Own
- imported
Sub total
NP/NPK
DAP/MAP – own
- imported
Sub total
Total (NPK/DAP)
TOTAL (UREA + NP/NPK+DAP)
43.22 40.71
20.13 17.98
63.35 58.69
27.94 24.47
11.14 6.88
15.84 22.54
26.98 29.42
54.92 53.89
118.27 112.58
Page 29
DISTRIBUTION NETWORK:
IFFCO distribute its fertilizers in 29 states/ UTs in the country through the cooperative
system. As a policy, IFFCO is channelizing its entire production and imports through
the cooperative network.
IFFCO sells its fertilizers through a network of about 39.862 cooperative societies in
different states. Nearly 60 percent of the material was sold directly to societies
whereas 35 percent was routed through federations. About 5 % fertilizers are sold
through 158 farmers’ service centers (FSC) run by IFFCO.
HIERARCHY IN IFFCO
LINE OF CONTROL IN FINANCE ACCOUNT DEPARTMENT

AWARDS WON BY IFFCO

 Prestigious Economic Times, Acer and Intel Smart Workshop Award in the
manufacturing and industrial segment.
 “ Best Content Service ” as well as the “Best Project Management” in respect of
IFFCO Kisan Sanchar Limited at the World Communication Award Held At London.
 Best Cooperative Society Award from Public Relation Society of India (PRSI) At Its
Golden Jubilee Ceremony in Mauritius.
IFFCO UNITS: KALOL UNIT
• “National Energy Conservation Award -2008”(2nd Prize) From Ministry Of Power,
Govt. Of India.
• Gujarat state safety award 2007 for lowest disability injury index (DII) in the
category of chemicals, fertilizers and distillers for the fourth conservative year.
PHULPUR UNIT
• First prize for “National Energy Conservation Award -2008” in fertilizer sector
instituted by bureau of energy efficiency, ministry of power, govt. on India. • “Golden
Jubilee Award” in recognition and appreciation of extraordinary accomplishment and
contribution to the nation from Chamber Of Commerce & Industry (Eastern U.P)
AONLA UNIT
• “Golden Peacock Environment Management Award-2008” during convention on
climate changes by world environment foundation.
• “National Award for Excellence in Energy Management-2008” from confederation
of Indian industry (CII) as “Energy Efficient Unit”.
• Aonla unit bagged “TERI Corporate Environment Award 2009” for its
effort towards environmental management and inanition initiative.
PARADEEP UNIT
• PARADEEP UNIT has won the FAI award for “Improvement in Overall
Performance” for the year 2008-09.
• FAI Award for “Best Technical Innovation” implemented in the field of fertilizers
technology for the year 2008-09.
• Paradeep unit also been awarded the “The Best Importer” for the year 2008-09 from
the Paradeep Port Trust.
KANDLA UNIT
 “SUN and NDTV Green It Award” under category of technology for a greener
workplace (1st prize).
ROLE OF INVENTORY MANAGEMENT

Management inventories constitute the most significant part of all the companies. On
an average, inventories are 60% current assets in India. Because of large size of
inventories maintained by firms, a considerable amount of funds is required to be
committed to them. It is therefore, absolutely imperative to manage inventories
effectively in order to avoid unnecessary investment. It is possible for a company to
reduce its level of inventories to a considerable level without any adverse effect on
production and sales, by using simple inventories planning and control techniques. It
was the period of mid 60’s the cooperative sectors in India, was holding the
responsibility for distribution of 70% of fertilizers consumed in the countries. Te
sector had adequate infrastructure to distribute fertilizers. But no production facilities
of its own and hence was dependent on public private sector for supply. To overcome
this lacuna and bridge the demand and supply gap in country, a new co-operative
society was conceived to specifically cater the requirement of the farmers. The
number of co-operative society attached with IFFCO has risen from 57 in 1967 to
37333 in March 2005.
IFFCO “Indian Farmers Fertilizers Co-operative Limited” was established on 3rd
Nov.’67 as a multiunit co-operative society engaged in production and distribution of
fertilizers. The bylaws society provides a broad framework from act of IFFCO as a co-
operative society. The emphasis is on production and distribution of fertilizers. In
order to fulfill these objectives IFFCO has set up KARLOL plant for manufacture of
nitrogenous fertilizers and KANDLA for manufacture of phosphates fertilizers.
IFFCO has emerged as ASIA’s largest fertilizers co-operative with its four modern
sophisticated plant at KALOL and KANDLA in Gujarat and PHULPUR and AONLA
in U.P. IFFCO is country’s largest producers of nitrogenous and complex fertilizers
with the total production capacity of 5.88 million tons and contributes aprox. 20% of
the fertilizers produced in the country.
The distribution of IFFCO fertilizers is undertaken through over 37337 co-operative
societies. The entire activities of distribution, sales are assisted by marketing offices in
the fields. In addition, essential agriculture inputs for crop production are made
available to the farmers through a chair of 167 service canter also. The total paid up
share capital as on the date stands at over Rs 456.87crores.
What Does Inventory Mean?

The raw materials, work-in-process goods and completely finished goods that are
considered to be the portion of a business's assets that are ready or will be ready for
sale. Inventory represents one of the mostimportant assets thatmost businesses
possess, because the turnover of inventory represents one of the primary sources of
revenue generation and subsequent earnings for the company's shareholders/owners.
Inventory management forecasts and strategies, such as a just-in-time inventory
system, can help minimize inventory costs because goods are created or received as
inventory only when needed.
Types of inventory
• Inventory of raw materials
• Inventory of stores and spare parts
• Inventory of work-in-progress
• Inventory of finished goods
Page 36
Inventory Management
Inventory management is primarily about specifying the size and placement of
stocked goods. Inventory management is required at different locations within a
facility or within multiple locations of a supply network to protect the regular and
planned course of production against the random disturbance of running out of
materials or goods. The scope of inventory management also concerns the fine lines
between replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future inventory price
forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting.
Balancing these competing requirements leads to optimal inventory levels, which is an
on-going process as the business needs shift and react to the wider environment.
Management of the inventories, with the primary objective of determining/controlling
stock levels within the physical distribution function to balance the need for product
availability against the need for minimizing stock holding and handling costs.
The Reasons For Keeping Stock:
There are three basic reasons for keeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to user at every
stage, requires that you maintain certain amount of inventory to use in this "lead
time".
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place where user
needs it, when he needs it" principle tends to incur lots of costs in terms of logistics.
So bulk buying, movement and storing brings in economies of scale, thus inventory.
Purpose of Inventory Management:

Inventory management must be designed to meet the dictates of market place and
support the company’s Strategic Plan. The many changes in the market demand, new
opportunities due to worldwide marketing, global sourcing of materials and new
manufacturing technology means many companies need to change their Inventory
Management approach and change the process for Inventory Control.
Inventory Management system provides information to efficiently manage the flow of
materials, effectively utilize people and equipment, coordinate internal activities and
communicate with customers. Inventory Management does not make decisions or
manage operations; they provide the information to managers who make more
accurate and timely decisions to manage their operations.
It is strategic in the sense that top management sets goals. These include deployment
strategies (Push versus Pull), control policies, the determination of the optimal levels
of order quantities and reorder points and setting safety stock levels. These levels are
critical, since they are primary determinants of customer service levels.
VMI reduces stock-outs and optimize inventory in supply chain . Some features of
VMI include:
• Shortening of Supply Chain
• Centralized Forecasting
• Frequent communication of inventory, stock-outs and planned promotions • Trucks
are filled in a prioritized order.
Despite the many changes that companies go through, the basic principles of
Inventory Management and Inventory Control remain the same. Some of the new
approaches and techniques are wrapped in new terminology, but the underlying
principles for accomplishing good Inventory Management and Inventory activities
have not changed.
Benefits of Inventory Management:

• Help reduce purchasing and inventory costs. Connect inventory control, purchasing,
and sales order processing with demand planning and help reduce costs, improve cash
flow, and help ensure that you have the right stock available when you need it.
• Gain visibility into inventory processes. Effectively balance availability with
demand and track items and their possible expiration dates throughout the supply
chain to help minimize on-hand inventory, optimize replenishment, and increase
warehouse efficiency.
• Improve customer satisfaction. Make more accurate order promises and intelligent
last- minute exceptions with access to up-to-date inventory information. Respond
quickly and knowledgably to customer queries for improved customer service.
• Reduce time to market. With integrated order, inventory, and distribution processes,
as well as item tracking capabilities, your business can reduce manual data entry and
get your goods to market fast.
Symptoms Of Poor Inventory Management:
A certain numbers of symptoms allow discovering poor inventory management. They
are as follows:
• Increasing number of back orders.
• High customer turnover rates.
• Increasing numbers of cancelled orders.
• Large quantities of obsolete items.
Page 39
• Periodic lack of sufficient space.

Inventory Management Improvement:

It has been identified that there are six activities which may help in improvement of
inventory management. These activities will be explained in order to provide some
background information on improvement of inventory management.
• Top management commitment. Because lower inventories have impact on many
different parts of logistic systems, senior leadership must ensure that all of those
activities are working together to meet customer needs without the luxury of excess
stock.
• ABC analysis of all inventory items. Management must first understand that the
goods in inventory are the most important in terms of their contribution to the
objectives of the organization.
• Improved performance of other logistics activities. Manager should ensure that the
rest of the logistic system is functioning efficiently. It may be those inventories
policies have evolve as a way to obscure other problems that should be dealt with
directly. By reviewing transportation, order processing and warehousing functions, for
example, management may find order- cycle variability can be reduced by improving
those activities that would lower the need for inventory.
• Improved demand forecasting. Demand forecasting is also a way of reducing
variability, this time in terms of expected versus actual sales. Better forecasting
techniques can be utilized to more accurately predict actual sales.
• Inventory management software. Software is currently available for inventory
management situation and allows managers to tracks sales by items, costs length of
time in inventory and other vector as well.
Inventory Management Policies:

 Inventory control is the managerial procedure for implementing inventory policies.
The accountability aspect of control measure units on hand at a specific location and
tracks additions and deletions. Accountability and tracking can be performed a manual
or computerized basis.
Inventory control defines how often inventory levels are reviewed to determined when
and how much to order. It is performed on either a perpetual or a period basis. To the
most effective, the inventory control system must also provide information in timely
manner to allow you to make decisions while problems can still be corrected.
Two models are usually used to control inventories:
• Perpetual review: a perpetual inventory control process reviews inventory status
daily to determine inventory replenishment needs. To utilize perpetual review,
accurate tracking of all stock keeping units is necessary. Perpetual review is
implemented through a re-order point and other quantity.
• Periodic review: periodic inventory control review, the inventory status of an item at
regular time intervals such as weekly or monthly. For periodic review, the basic re-
order point must be adjusted to consider the extended intervals between reviews.
 Reactive methods: the reactive or pull system, as name implies, responds to a

channel member’s inventory needs by drawing, the products through the distribution
channel. Replenishment shipments are initiated when available warehouse stock level
fall below a predetermined minimum or order point. The amount ordered is usually
based on some lot- sizing formulation, although, it may be some variable quantity is a
function of current stock levels and a predetermined maximum level.
Classical reactive inventory logic is rooted in the following assumption. Firstly, the
system is founded on the basis assumption that all customers, market areas and
products contribute equally to profits.
Secondly, reactive inventory logic assumes infinite capacity at the source. This
assumption implies that products can be manufactured as desired and stored at the
production facility until required throughout the supply chain.
Mostly reactive system decision rules assume demand patterns based on standard
normal, gamma or Poisson distribution. When the actual demand function does not
resemble one of the above functions, the statistical inventories decision rules based on
these assumptions will not operate correctly.
 Planning methods: inventories planning methods use a common information base to
coordinate inventory requirements across multiple locations or stages in the supply
chain. Planning activities may occur at the plant warehouse level to coordinate
inventory allocation and delivery to multiple destinations. Planning may also occur to
coordinate inventory requirements across multiple channel partners such as
manufactures and retailers.
a) Fair share allocation: Fair share allocation is a simplified inventory management
planning methods that provided each facility with an equitable or “fair share” of
available inventory from a common source such as a plant
warehouse. Using fair share allocation, the inventory planner determines the
amount of inventory at the plant.
b) Distribution requirements planning (DRP): DRP is a more sophisticated planning
approach that considers multiple distribution stages and their unique characteristics.
DRP is the logical extension of manufacturing requirement technique (MRP),
although there is one fundamental difference between the two techniques.
 Adaptive logic: a combined inventory management system may be used to
overcome some of the problems inherent in rising either or a planning method. The
factors that might make a reactive system better in one situation may change over time
to favor the use of an inventory planning system. Thus, the ideal approach is an
adaptive inventory management system that corporate elements of both types of logic
and allows different strategies to be used with specific customer or product segments.
Cost formulae for determining cost of inventories Weighted Average Method
IFFCO are using weighted average method. Under this method the issue price is
calculated by dividing the value of materials in hand by the number of units in hand.
Thus it takes into account both quantities and money value for arriving at the issue
rate. Whenever a new consignment is received, a new weighted average price is
calculated by adding the value of the consignment to the cost of stock in hand. The
rate thus, calculated is used to price all issues until a new consignment is received.
The method is more scientific as it smoothens the fluctuations in purchase price.
Further,
inventory is valued at one rate.INVENTORY VALUATION AT IFFCO Inventories
are valued at lower of cost or net realizable value.
a) The cost in respect of various items of inventory is computed as under:
• Raw Materials, Packing Materials, Construction Materials, Loose Tools in Stock,
Chemicals & Catalysts in Stock and Stores & Spares at monthly weighted average
cost.
• Stock-in-Process at direct cost and an appropriate portion of overheads.
• Finished Goods:
- Manufactured Nitrogenous Fertilizers covered by Group Concession Scheme at
Annual Cost of Production at Plant after adjustment of subsidy as determined as per
the Revised Norms of the Fertilizer Industry Coordination Committee (FICC).
- Manufactured Phosphatic Fertilizers at Annualized Cost of Production at Plant plus
freight unto the warehouses after adjustment of subsidy as estimated in accordance
with known policy parameters in this regard.
- Imported Nitrogenous Fertilizers at procurement cost plus direct expenses less
reimbursement of handling cost as fixed by the Government of India.
- Imported Phosphatic Fertilizers at procurement cost plus direct expenses after

adjustment of subsidy as estimated in accordance with known policy parameters in
this regard.
b) Net realizable value of Finished Goods is determined at estimated selling price in
the ordinary course of business less the estimated costs necessary to make the sale.
INVENTORIES CONTROL
Inventory control is a systematic control and regulation of purchase storage and usage
of materials in such a way as to maintain an even flow of production and at the same
time avoiding excessive investment in inventories. An efficient material control
reduces loses and wastage of material that otherwise pass on notice.
Inventory control is an important part of material management. The need and
importance of inventories various in direct proportion to idle time cost of men and
machinery and the urgency of requirement. If men and machinery and the factory
could wait and so could customers, materials would not lie in want for them and no
inventories needs to be carried. But it is highly uneconomical to keep men and
machinery waiting and requirement for modern life are so urgent that they can’t wait
for materials to arrive after the need for them has arisen. Hence, firms must carry
inventory.
NEED OF INVENTORIES
• ORGANISATIONAL: inventories are maintained to widen the latitude in planning
and scheduling successive operation. Raw material inventories enables a firm to
decoupage its purchase and production.
• PROCESS: inventory provides flexibility in production schedule so that an efficient
schedule and high utilization of capacity may be attained. Without work in progress
inventory, a bottleneck at any stage in the production process may be render ideal the
machine and facility at subsequent stages. In adequate process inventory may result in
delay of production and ideal facilities.
• FINISHED GOODS: inventories enable a firm to decoupage its production
programmers and marketing activities so that desirable result may be achieved on both
the fronts. If the adequate finished goods are available, the marketing department can
meet the needs of the customer promptly, irrespective of the quality and composition
of goods flowing out of the production line currently.
Thus, firm may established a programmed inventory monitoring and control
consisting of the following elements:
• Exercise of vigilance against imbalance of raw materials and work in progress

which tends to limit the utility of stocks.
• Vigorous efforts to expedite completion of unfinished production jobs to get them
into salable conditions.
• Active disposal of good that is surplus, obsolete or unusual.
• Strict adherence to production schedule
• Special pricing to disposal of unusually slow moving items.
• Change in design to maximize the use of standards parts and components, which
are available off the shelf.
OBJECTIVES OF INVENTORY CONTROL
Scientific control of inventories should serve the following purpose:
• To provide the continuous flow of required materials, part and component
efficient and uninterrupted flow of production.
• To minimize investment in inventories keeping in view of operating
requirement.
• To provide facility for efficient storage of materials so those inventories are
protected from loss fire and theft & handling time and cost keep minimum.
TECHNIQUE OF INVENTORY CONTROL:

Reduction of surplus stock is an essential requirement effective inventory control.
Various techniques of controlling the inventories are as follows:-
1. Mini- max plan.
2. The two bin system.
3. 4. 5.
o
Order cycling system. Fixation of various levels. Control ratio.
Mini Max Plan:
This is the oldest method of inventory control. In this plan, analysis lays down a
maximum and minimum for each stock item. Minimum establishes the reorder point
and order is placed for quantity of material, which will bring it to the maximum level.
o The Two Bin System:
The basic procedure is that for each item of stock, two piles or bundles of bins are
maintain. The first bin stocks that quantity of first, which is sufficient to meet its
usage during the period that elapses between receipt of order material and the placing
of next door. The second bin is tapped, a requisition for new supply is prepare and
given in purchase department.
o Order cycling system:
In this system, quantities in hand of each items or class of stock are received
periodically (30/60/90 days). If it is observed that stock level of a given item will not
be sufficient till the next schedule. Review keeping in view of its entire probable rate
of depletion, an order is placed to replenish its supply.
oFixation of various levels:
Certain stock levels of fixed level are given below:

A) Maximum level: It represents minimum quantity above which stock should not be
held at any time. Stock above maximum leads to a higher, Inventory cost to the
organization.
Maximum stock = re-order + reorder quantity (minimum level consumption *
minimum reorder period)
B) Minimum level: It represent minimum quantity of stock that should be held at all
the time. Stock below minimum level my lead to the interruption in production
scheduled. The minimum level can be calculated by the following formulas: minimum
level = reorder level-(normal consumption + normal reorder period).
o Control ratios: Inventory turnover ratio helps management to avoid capital being
locked of unnecessarily. This ratios revels the efficiency of stock keeping. Inventory
turnover ratio is given by: cost of material consumed / cost of average stock held
during the period.
Where cost of average stock = (cost of opening stock + cost of closing stock)/ 2
Calculation in days:
Days during the period/inventory turnover ratio reveals the number of days for which
the stocks are held.
OBJECT
Inventories have to be properly valued because of the following Reasons:
o Determination of current income.
o Determination of financial position. o Computation of ratios.
Page 52
E-COMUNICATION AND CONTROL ON INVENTORY IN
IFFCO
E- RAIL FACILITY:
IFFCO is a regular client of Indian Railways. So, they have given a special facility to
IFFCO, by providing a separate website attached with Indian railway sites so that they
can easily track the location of their rakes, which have been loaded with Urea’s and
fertilizers, travelling from plant location to the respective rake points. From there, the
material would transfer to the warehouses for storage.
In IFFCO, there are 2 modes of supply of inventories from plant location to the
warehouses and respective societies. They are as follows:
a) Railways
b) Roads
Railways:-
It is widely used mode of transport, used by IFFCO for the supply of fertilizers and
urea. Generally, as soon as the goods are loaded in the rakes, a Dispatch Advice (D.A)
is generated by the stock manager of the plant, which contains all the required
information related to the materials i.e. quantity, type of fertilizer, rake number, date
of dispatch etc.
As, the rake arrives to the regional rake point, the RR is handed over to the authority
i.e. field officer of that point and officer got responsible to send the Rake Receipt
(RR) to the plant, after proper checking of quantities with DA, through their WAN
communication network i.e. E-VIKAS.
This whole process is completely computerized. The web site which railway has given
to the organization, help them in tracking the rake position on time and it save lots of
resources of them.
ROAD:
Another mode of transport used by IFFCO is road. It is generally used to transfer

the material to the nearby areas of the plants.
IFFCO use this mode to distribute its finished goods to the warehouses within the
range of 100 – 150 kms. This done through trucks along with the dispatch advice and
the same procedure is being used.
This mode of supply is not very much profitable for the company because –
• No feasibility
• Not economical
• Time taking
Page 54
OVERVIEW OF INTERNAL CONTROL RELATING TO INVENTORY

Internal control refers to the norms through which a particular activity can be carried
out. In IFFCO, the material is purchased in the following norms:
Steps:
1. For raw material, the particular department will issue MRP (material purchase
requisition) notes, to the purchase department.
2. On the basis of MRP note, the purchase will be issue tender or will intimate to
registered parties for the quotation.
3. On the basis of quotation the committee will decide which party is competent for
the
requisite material.
4. After decision the purchase department will issue purchase order to the competent
party.
5. These purchase order will be issued to for the concern parties-
a) Suppliers
b) Account section
c) Purchase account
d) Store
6. After purchase and supply of material, the indent department will inspect the
material.
7. After inspection, all the material will be issue according to their own norms.
8. After storing , the store department sends SRV (store receipt voucher) notes to the
following department –
a) 1 copy to the purchase department
b) 1 copy to the indent department
c) 2 copy to the accounts department
d) 1 copy to lies to the store department itself.
9. After pricing the SRV by the billing section of F & A department and after receipt
of invoice from the supplier, the accounts section will issue the cheque to the
concerned party for the value received.
DIFFERENT VOUCHERS IN IFFCO
In IFFCO, there are 3 types of receipt and issue vouchers, generally used for the
particular receipt and issue materials. The lists are as follows:
 Receipt vouchers:
a) SRV (store receipt voucher)
b) ISRV (internal store receipt voucher)
c) DCSRV (direct consumer store receipt voucher)
 Issue vouchers:
a) SIV (store issue voucher)
 Adjustment vouchers:
a) SAV (stock adjustment voucher)
b) STV (stock transfer voucher)
Page 56
ROLE OF PURCHASE FUNCTION IN IFFCO

The purchase department, in any organization, is at the interface of internal and
external environment. This department is responsible for purchase of various
machines, raw materials and other items required by the organization. Purchase
function from integral part of material management and it play very important
function as it through this procedure that the right amount of material required is
delivered at the right place and at the right time so that the process of production or
manufacturing goes on unhampered.
The purchase department of an organization must know following things: 
Knowledge of the material.
 Source of material – vendors
 Reasonable price
The most important things is the indenter must trust the vendors.
Purchasing can also be seen as either strategic or transactional. Also the word “direct”
and “indirect” have been used to distinguish the two types: strategic (direct) buying
involve the establishment of mutually beneficial long term relationship between
buyers and sellers. Usually strategic buying involves purchase of material that are
crucial to the support of the firm’s distinctive competence. This could include raw
material and components normally used for production process. Transactional
(indirect) buying involves repetitive purchases from same vendor, probably through a
blanket purchase order. These orders could include products and service not listed on
the bills of materials but is used indirectly in producing the items.In more specific
terms, today’s purchasing departments are responsible for:
 Coordinationpurchaseneedswithuserdepartments.  Identifyingpotentialsuppliers.
 Conductingmarketstudiesformaterialpurchases  Proposalanalysis
 Suppliersselection
 Issuingpurchaseorders
 Meetingwithsalesrepresentatives
PURCHASE PROCESS
Page 58
 Recognition Needs: The purchase order is made by the purchase department

when it feels necessary and on the request of indenting department.
 Requisition to purchase: this is an intimation to purchase department by the indenter
that the needed certain material. He raises request by filling form as material purchase
requisition (MRP). In this he furnishes various information:-
a) Name of the item & its code no.
b) Amount required
c) Estimated price
d) Requireddeliverydate
e) Suggested vendors
f) Section/ department Code no.
 MRP security: in this step, scrutinizing of the MRP to certified the genuinely of the
need, for this, first approval to given by immediate higher authority of the indenter.
Next the MRP is send to the stores, to check whether the material is available or not.
If it is available the MRP goes to the purchase deptt. For further action. Here it is
scrutinize in three ways:
a) Approval scrutiny
b) Budget scrutiny
c) Technical scrutiny
 Sending or enquiry/invitation to bid:
Proprietary items: these are those items e.g. spares which have to be brought from
particular supplier or vendor.
Non proprietary items: these are those for which there is no restriction on vendor.
Enquiry is sent in order to know the prices and other terms and conditions of vendors.
Bidding can be done in 3 ways:
• Proprietary bidding
• Limited tender enquiry
• Press tender/open bidding: if the amount of purchase involves more than 3 lacs and
item is non proprietary then press tender is issued in newspapers.
 Receiving Of Offers: after all bids have been submitted the tenders are open before
tender committee to compare the quotations. Quotation comparison statement (QCS)
is made and bid with lowest quotation is generally chosen.
 Purchase Order: after selecting the best offer, purchase order is sent to that vendor
with all the terms and conditions specified and details of the materials to be purchased
are also given. A bank guarantee of performance is taken from the vendor in advance
which is usually 5% of the P.O.A time limit is set for delivery of consignment and in
case of delay a penalty is imposed @5% of the P.O per week.
 Receipt of Material: after the consignment reaches the stipulated place, the payment
is done by the organization according to the purchase terms agreed upon the two
parties. The material is checked for quality conditions and then sent to the store where
the store releases the “Store Receipt Voucher”, from here it is delivered to the vendor.
 Follow Up Done For Every Order: it may be regarding delay in supply changes in
prices, defective or damaged items supplied etc. For every indent a separate file is
opened and correspondence goes on.
FACTORS FOR PURCHASING

The importance of purchasing is any firm is largely determined the four factors:
• Availability of materials
• Absolute dollar volume of purchases
• % of product cost represented by material
• Types of material purchased.
Purchasing must concern itself with whether or not the materials used by the firm are
readily available in the competitive market or whether some are brought in volatile
markets that are subject to shortages and price instability.
If the form spends a large percentage of its available capital on materials, the sheer
magnitude of expense means that efficient purchasing can produce a significant
savings. Even small unit saving add up quickly when purchased in large volume.
When a firm’s material costs can increase profit margins significantly, in this
situation, efficient purchasing and purchasing management again can make or break a
business.
Perhaps the most important of the four factors is the amount of control purchasing and
supply personnel actually have over material availability, quality, costs and services.
PAYMENT AGAINST PURCHASE

There are various modes of payment-
1. Advance payment to suppliers:
Advance payment shall be made to the suppliers only in such cases where it is
specifically provide in the contract order. The advance payment to contractors shall be
made against submission of bank guarantee in the Performa provided by IFFCO.
Advance payment against indemnity bond shall not be release as provided in the
purchase procedure.
2. Full Payment / 90% To 95% Payment:
In case the terms of payment provide for full payment or part payment against
dispatch document through bank, the suppliers will be negotiating the documents
through the bankers. After the documents are received by the bankers, they are
forwarding bank intimation along with a copy of the purchase order to ascertain that
the invoice is raised for the material ordered and conforms to the other terms and
condition of purchase orders.
After the intimation from the bank is received the received the invoice of the
supplier will be

scrutinized by the finance and account department for the following:- Purchase order
number
Whether material supplied are as specified in the purchase
Quantity supplied
Whether excise duty, sale tax and other taxes are as per the order
Where
90% to 95%. It should be ensured that penalty for delay, as provided in the purchase
order, is recovered before releasing the balance payment.
there is delay in supplying the material and the payment through bank is
FULL PAYMENT / BALANCE PAYMENT AFTER RECEIPT OF

MATERIALS:
In case the purchase red provides the 100 % payment after receiving of materials and
accepted payment is to be released after the MRR is recessed from the stores
department. In case the purchase order dispatch documents and the balance payment
after receipt of materials, the balance payment may also to be released after the MAR
is received and it is confirmed that the material has been accepted after inspection and
taken on charge. Before released of the payment, the invoices should be scrutinized as
the case of payments released through bank. In addition it should also be verified
whether all the items invoiced have been received, inspected and accepted per the
MRR.
DELAY IN DELIVERY
In case of project purchases, the time and date of the delivery is the contract. In the
event of delay in the execution of the order beyond the date of delivery as stipulated in
the order, the project authorities may take following actions –
 Accept delayed delivery at price reduced by a sum equivalent to 0.5 % if the value
goods not delivered for every week of delay or part thereof limited to a maximum of
5% of the contract value.
 Cancel the order in part or full and purchase such cancelled materials from
elsewhere on account and at the risk of the suppler without prejudices to his right
inspect of goods delivered.
ROLE OF WAREHOUSING AND DISTRIBUTION IN INVENTORY

MANAGEMENT:
Without warehousing and distribution, stores and restaurants would be empty of both
products and customers. All of us depend on warehousing, distribution, and inventory
management to provide us with what we want, when we want it, at a price we can
afford. Whether your warehouse’s pallet rack holds shampoo or computer parts, you
play a key role in a supply chain that millions of people depend upon to maintain their
standard of living. This means warehousing and distribution are worth the time and
effort of analyzing the way you manage your inventory. In the chain of events that
leads to putting products in the hands of consumers, your warehouse is responsible for
receiving, storing, and shipping items. Despite the warehouse’s important role in
inventory management, to this day, warehouses are often a misunderstood and
underestimated asset. Here are some key areas where your warehousing and
distribution methods affect the profitability of many other companies:
• Help businesses avoid lost sales. Since you keep goods on hand, businesses are able
to sell those goods and avoid losing valuable customers.
• Help provide discounts. Bulk inventory often equates to discounts for your company
and consumers alike. The larger the order and the inventory, the smaller the price is
per item.
• Keeps production rolling. To manufacture an item, factories need all the pieces in
sufficient quantities. Warehouses keep those pieces on hand for factories, avoiding the
huge expense of halting production.
WAREHOUSE MANAGEMENT SYSTEM:

Warehouse management deals with receipt, storage and movement of goods, normally
finished goods, to intermediate storage locations or to final customer. In the multi-
echelon model for distribution, there are levels of warehouses, starting with the
Central Warehouse(s), regional warehouses services by the central warehouses and
retail warehouses at the third level services by the regional warehouses and so on. The
objective of warehousing management is to help in optimal cost of timely order
fulfillment by managing the resources economically.
A warehouse management system, or WMS, is a key part of the Inventory
management and supply chain and primarily aims to control the movement and
storage of materials within a warehouse and process the associated transactions,
including shipping, receiving and picking. The systems also direct and optimize stock
put away based on real-time information about the status of bin utilization.
The objective of a warehouse management system is to provide a set of computerized
procedures to handle the receipt of stock and returns into a warehouse facility, model
and manage the logical representation of the physical storage facilities (e.g. racking
etc), manage the stock within the facility and enable a seamless link to order
processing and logistics management in order to pick, pack and ship product out of the
facility.
NEEDS FOR WAREHOUSING:

Warehousing is necessary due the following reasons:
I. Seasonable production: you know that agricultural commodities are harvested
during certain seasons, but their consumption or use takes place throughout the year.
Therefore, there is need for proper storage or warehousing for these commodities,
from where they can be supplied as and when required.
II. Seasonal demand: there are certain goods, which are demanded seasonally, like
woolen garments in winters or umbrella as in the rainy season. The production of
these goods takes places throughout the year to meet the seasonal demand. So there is
a need to store these goods in a warehouse to make them available at the time of need.
III. Large scale production: in case of manufactured goods, now a days production
takes place to meet the exiting as well as future demand of the products.
Manufacturing also produce goods in huge quality to enjoy the benefited of large scale
production, which is more economical. So the finished products, which are produced
on a large scale, need to be stored properly till they are clearly by scales.
IV. Quick supply: both industrial as well as agricultural goods are produced at some
specified places but consumed throughout the country. Therefore, it is essential to
stock goods are made available to the consumers at the time of their need.
V. Continuous production: continuous production of goods in factories requires
adequate supply of raw materials. So there is a need to keep sufficient quantity of
stock of raw material in the warehouse to ensure continuous production.
VI. Price stabilization: to maintain a reasonable level of the price of the goods in
the market there is a need to keep sufficient stock in the warehouses. Scarcity in
supply of goods may increase their price in the markets. Again, excess production and
supply may be also leads to fall in prices of the product. By maintaining a balance of
supply of goods, warehousing leads to price stabilization.
FUNCTIONS OF WARHOUSES:
WAREHOUSES provide protection to goods against heat, wind storm, moisture etc.
and also cuts down losses due to spoilage, wastage etc. This is the basic functions of
every warehouse. In addition to this, warehouses now a day also perform a variety of
other functions.
 Storage of goods
 Protection of goods
 Risk bearing
 Financing
 Processing
 Grading and branding
 Transportation
ADVANTAGES OF WAREHOUSING:
Page 69
WAREHOUSING offers many advantages to the business community. Whether it

is industry or trade, it provides a number of benefits which are listed below:
• Protection and preservation of goods.
• Regular flow of goods
• Continuity in production
• Convenient location-
• Easy handling-
• Useful for small businessmen
• Creation of employment
VENDOR MANAGED INVENTORY
In its simplest form, Vendor Managed Inventory is the process where the vendor
assumes the task of generating purchase orders to replenish a customer’s inventory.
VMI is a term that is used to describe many types of supply chain initiatives.
VMI means of optimizing supply chain performance in the manufacturer is
responsible for maintaining the distributors’ inventory data and is responsible for
generating purchase orders.
VMI is a family of business models in which the buyer of a product provides certain
information to a supplier of that product and the suppliers takes full responsibility for
maintaining an agreed inventory of the material, usually at the buyer’s consumption
location (us ually at the store). A third party logistics provider is involved who makes
sure that the buyers have the required level of inventory by adjusting the demand and
supply gaps.
 Under The Typical Business Model: when a distributor needs product, they place an
order against a manufacturer. The distributor is in total control of the timing and size
of the order being placed. The distributor maintains an inventory plan.
 Vendor Managed Inventory Model: The manufacturer receives electronic data

that tells about the distributors sales and stock levels. The manufacturer can view
every item that the distributor carries as well as true point of sales data. The
manufacturer is responsible for creating and maintaining the inventories plan. Under
VMI, the manufacturer generates the order, not the distributor.
Advantages of VMI:-
• Higher service degree
• Higher responsibility & more liberty of the suppliers when disposing the
supplies.
• More economical lot sizes
• Small stocks with the dealers
VMI reduces stock outs and reduces inventory in the supply chain. Some features are:
• Shortening of the supply chain.
• Centralized forecasting
• Frequently communication of inventory, stock out and planned promotions.
• No manufacturing promotions
• Trucks are fulfilled in a priority order.
VMI implementation challenges:
VMI can be made to work, but the problem is not just one of logistics. VMI often
encounters resistance from the sales force and the distributors. At issue are roles and
skills, trust and power shifts. Some of the sales force concerns are:
• Loss of control
• Effects on compensation – incentives, bonuses may be depends on how
much is sold, but sales force has less influence under VMI.
• Possible loss of jobs
• Skepticism that it will function well – technical problems.
Concern that reduced inventory will result in less shelf space and therefore loss of
market share. This concern can be addressing, by filling the self space with other stock
keeping units from the same vendor.
Operational cost of purchase department from 2008-09

Name of the location
Sr. no. Phulpur 1. Wages of officials per 03-04
annum
A Total no. of 22 employees
B
04-05 06-07
22 22
402882 435008
07-08
26
469035 3414768 1994622
533409
275960
86050 - 32289
4800
08-09
25
505734 4739228 1725412
446943
231227
154617
34306
38697
34306
4800
1324
Average lead time in days
69
Page 73
Wages of officials per annum
CM (MAT) 380231 Middle level officer 2330502
Workers level employees
Value of machines (16.21% dep. Per year)
2463453 2347417 1884399 1979625 1900161
2.
A PCs
B Network printer
3. Misc. expenditure
A Stationary
B Postal cover
C Fax charges
D Telephone charge
E Books/periodical/
newspaper
Total
expendit
ure of
purchase
4. Total no. of orders
processed per year
Internal Lead Time
384596 488247 409102 213925 209748 175747
109852 94096 73535 - - - 80639 91059 38889
4800 4800 4800
5388944
5733910 5384659 6810933 7880964
1296
1421
No. of days
242
1672 1383
Total value of orders (in lacs)
12.93
Sr.no. Types of order
1 Up to Rs
15000
2 Rs 15000 to 1 413 lacs
3 Rs1lacs-Rs 481
10 lacs
4 Above Rs 160
10 lacs
193.91
1639.74
9504.56
81
78
54
OVERALL AVERAGE
70
DAYS
Page 74
SUPPLIERS EVALUATION CRITERIA SHOULD BE USED

Q: 1 HOW TO EVALUATE SUPPLIERS?
Ans: We can evaluate suppliers on the basis of:- • Prices
• Quality • Services • Delivery
Q: 2 How to measure the performance of the suppliers?
Ans: Though the little change in their DFD i.e. “data floe diagram” are:-
• Purchasing Management with SAP Business One.
Q: 3 Why to use “SAP BUSINESS ONE”?
Ans: the Material management system which IFFCO using is in house built and it is
not as professional and reliable as SAP BUSINESS ONE, that’s why employees there
more rely on paper work rather than using the software.
SUPPLY BASE REDUCTIONS
Q: Why supply base reduction is necessary in IFFCO?
Ans: IN IFFCO, the numbers of supplier are as follows:
Sr. no.
1.
A.
B.
Name of Location Phulpur
Total no. of vendors 3161
Domestic vendors 2921
Foreign vendors 240
Since there are large number of suppliers in IFFCO, so they are not properly
managed and the result is increment in lead time and there is a gap in supply chain.
They should review the performance of suppliers every year and reduce accordingly.
Q: 4 what methods can they use to reduce supply base?
Ans: they can be:-
• Twenty/ eighty rule
• “Improve or Else” approach
Page 75
• Triage approach
CAN GO FOR ANNUAL RATE CONTRACTS
Q: What is the benefit for annual rate contracts?
Ans: annual Rate Contracts can help in the establishment of mutually beneficial long
term relationships between buyers and suppliers. So, purchasing departments
determine what to buy, where to buy it, how much to pay, and ensure its availability
by managing the contract and maintaining strong relationships with suppliers. It
helps:-
• In reducing lead time
• In reducing inventory levels, no need to block money in inventory.
• One time bidding.
COMPARATIVE ANALYSIS OF INVENTORY AVAILABLITY IN IFFCO

UREA
JANUARY FEBURARY MARCH APRIL MAY
JUNE
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
ANALYSIS:-
2008-09 (LACSMT)
0.25 0.25 0.24 0.25 0.26 0.26 0.25 0.26 0.20 0.23 0.24 0.28
2009-10 (LACS MT)
0.45 0.38 0.35 0.39 0.37 0.41 0.42 0.39 0.40 0.39 0.43 0.44
• According to this analysis, IFFCO has increased its production and sales
capacity. Though they have enough closing stock of materials in their warehouses as
compare to 2008-09.
• The sales of the urea is very much high in September and October month, though
they have enough material in hand to supply.
ANALYSIS:-
• This analysis shows that the inventory in the hand of IFFCO was very much constant
in volume.
• In the month of December, company was having 10% of the total product as a stock;
this shows the decrease in the sales of the urea in the market.
NPK/DAP
JANUARY FEBURARY MARCH APRIL MAY
JUNE
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
2008-09 2009-10
0.95 0.55
0.91 0.58
0.92 0.57
0.88 0.56 0.82 0.57 0.93 0.56 0.87 0.57 0.95 0.56 0.83 0.50
0.90 0.45
0.91 0.56
0.94 0.50
CLOSING STOCK (MONTHLY)
ANALYSIS:-
• This analysis shows that the production of nap/dap is much higher than 2009-10.
• There is a stable control over storage of finished unsold product.
ANALYSIS:-
• In the month of September and October , the sale of the NPK/DAP was on peak. So
the demand of the product goes high and the volume of available resource had goes
down.
• Only 7% of the NPK was retained with the hand of company.
SWOT ANALYSIS
STRENGTH:
• Largest producer of fertilizers in the country.
• Five strategically located plants with cutting edge production technologies.
• Most plants achieve capacity utilization in excess of 100%.
• A large number of co-operative societies are associated with IFFCO (38,155 at
present).
• Vast marketing and distribution network due to the high number of co-operative
associates with IFFCO.
• Their service network and feedback network is also pervasive in INDIAN RURAL
AREAS.
• Highly diverse and strategic portfolio of external investments.
• No external trade union exercises any power within IFFCO.
WEAKNESS:
• IFFCO has a bureaucratic organizational structure and therefore, is obsessed with
working within set a framework defined by rigid rules and regulations. This is often
discourages innovation and may also cause sub unit conflicts, in some cases, blind
adherence to rules and regulations may limit the perspective of a manager and result in
functional unit goals overriding organizational goals.
• The organizational setup is very rigid and not very efficient in handling sudden
changes in business environment.
• There is excessive sub divisions in some departments and this results in inefficiency.
OPPURTUNITES:
IFFCO has embarked upon a growth plan titled “vision 2010”to achieve annual
turnover of Rs. 15000 crores (USD 3400 million) by the year 2010.
• Installation of Ammonia/Urea plants and also acquisition of fertilizer units.
• Generation of power.
• Production and marketing of micro nutrients, seeds, bio fertilizers, pesticide etc.
• Value addition to Agri-Products and Marketing.
• Banking and Financial Services.
• Information Technology and IT enable Services.
• Establishments of Retail Chain in Urban and Semi- Urban locations.
THREATS:
• Competition from KRIBHCO i.e. Krishak Bharti co-operative another government
under taking which also produce fertilizer and is very similar to IFFCO in nature.
• Aggressive competition from private companies which are now entering the fertilizer
sector.
• The government of India has a major influence on the functioning of IFFCO. It is the
government which decides “what to produce?”, “how much to produce?” and “where
to sell?”. This factor often becomes IFFCO’s major weakness as it sometimes has to
functions undue political pressure and takes steps which are non- profitable.
• Government policies on import of fertilizers from foreign nations and decrease in
subsidies.
•
SUGGESTIONS:
• The organization should establish a national level committee which can familiarize
the government with the ground realities in the Fertilizer sector and also advise the
government in formation of Policies regarding distribution of fertilizers, import of
fertilizers and subsidies.
• There should an Entrepreneurship Development Cell at all plants which should
encourage innovation amongst employees. This would infuse some of the positives of
an organic design in to the organizational environment. This cell should lay new
business ideas and innovations in front of the top levels of management.
• Unnecessary sub-divisions in departments should be eliminated to promote
efficiency. In the Personnel & Administration department one sub-division can handle
both Legal Matters and Contract Laws.
• The Inspections & Plant Health Department can be dissolved. The Maintenance
Department can have an additional sub-division for Inspections & Plant Health. This
will streamline the organizational structure and also increase the efficiency of overall
maintenance.
• The Co-operation should not be rigid in its approach and should be ready to face
sudden variations in business environments. Managers should not limit themselves to
following regulations blindly but should proactively analyze situations.
Inventory management is one of the important key activities of business logistics.

Because of its role in business organizations, inventory is one of the most important
instruments of logistics planning and control. Inventory on work in process is linked
to the production process, physical inventory on stock or in buffer storage is
unnecessary from the standpoint of added value and is considered as waste of time and
money.
It might seem axiomatic that inventory control is efficient as long as inventory level is
going down. But the fact is that, if inventories are minimized without adequate
operations, inventories have been mismanaged rather than controlled efficiently. Thus,
the basic objectives of inventory management appear to be conflicting in nature.
Inventories should increase or decrease in amount or time as related to sales
requirements and production schedules.
IFFCO is in the business of fertilizer manufacturing and in this sector a huge
investment in plant and machinery is required.
Therefore IFFCO should efficiently use various inventory management tools to
control the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ,
Min-Level, Max-Level system of verification of inventory etc.
BIBLIOGRAPHY
Books:-
References:-
 Marketing
 NewsPaper
 Magazine
 ManagementAccounting
 FinancialAccounting
Dr.S.P.Gupta KhanAndJain
PhilipKotler TheEconomicTimes BusinessToday
 Annual Report Of IFFCO 2009-10
 MarketingNewsOfIFFCO(Weekly)
 Website:www.iffco.nic.in
INDIAN FARMERS FERTILIZERS COOPERATIO

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PROJECT REPORT

TO WHOMSOEVER IT MAY CONCERN

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 9

INDIAN FARMERS FERTILIZERS COOPERATIVE LIMITED

VISION AND MISSION OF IFFCO

INFORMATION AND COMMUNATION TECHNOLOGY

PROFILE OF PRODUCTS AND SERVICES

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 19

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 20

IFFCO ASSOCIATES AND SUBSIDIARY COMPANIES

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 22

PERFORMANCE HIGHLIGHTS 2009-10

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 24

INTRODUCTION TO THE PLANT UNITS OF IFFCO

MATERIAL 2009-10 2008-09

LINE OF CONTROL IN FINANCE ACCOUNT DEPARTMENT

AWARDS WON BY IFFCO

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 34

ROLE OF INVENTORY MANAGEMENT

What Does Inventory Mean?

Purpose of Inventory Management:

Benefits of Inventory Management:

• Periodic lack of sufficient space.

Inventory Management Improvement:

Inventory Management Policies:

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

- Imported Phosphatic Fertilizers at procurement cost plus direct expenses after

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

TECHNIQUE OF INVENTORY CONTROL:

Certain stock levels of fixed level are given below:

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

OVERVIEW OF INTERNAL CONTROL RELATING TO INVENTORY

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 57

ROLE OF PURCHASE FUNCTION IN IFFCO

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

FACTORS FOR PURCHASING

PAYMENT AGAINST PURCHASE

FULL PAYMENT / BALANCE PAYMENT AFTER RECEIPT OF

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 64

ROLE OF WAREHOUSING AND DISTRIBUTION IN INVENTORY

WAREHOUSE MANAGEMENT SYSTEM:

NEEDS FOR WAREHOUSING:

WAREHOUSING offers many advantages to the business community. Whether it

 Vendor Managed Inventory Model: The manufacturer receives electronic data

Operational cost of purchase department from 2008-09

SUPPLIERS EVALUATION CRITERIA SHOULD BE USED

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 77

COMPARATIVE ANALYSIS OF INVENTORY AVAILABLITY IN IFFCO

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 82

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 86

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

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED Page 88

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