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SUMMER TRAINING PROJECT REPORT
ON“A comprehensive study of
INVENTORY MANGEMENT SYSTEM
At IFFCO, AONLA”
For partial fulfillment ofMASTER OF BUSINESS ADMINISTRATION
Batch-2008-2010
SETH PADAM CHAND JAIN INSTITUTE OF COMMERCE, BUSINESS MANGEMENT & ECONOMICS
KHANDARI, AGRA(Dr. B. R. Ambedkar University)
Submitted by:KRISHAN KUMAR SINGH CHAUHAN
M.B.A. (F/T)Roll No. 20
PREFACE
A comprehensive practical study of management is a supplement to the theoretical classroom knowledge. It helps to understand the subject more precisely.
This report tries to outline idea of professional world & helps in understanding the pragmatic aspect of management function. Own observation are significant towards the contribution in learning the subject. The report is therefore designed as a reference of organization functioning rather than copy down instrument. The purpose of vocational training is to make management student familiar with day to day functioning of business. The present report is an effort in this direction.
My humble endeavor & motive in presenting the project report is to impart a balanced introduction & knowledge of functions of inventory management which is an important integral part of financial management.
It is hoped that this project will serve as a supportive document to research worker as effort has been tried to make this report an informative, stimulating & self explanatory.
ACKNOWLEDGEMENT
I am thankful to Mr. RAJAN KESHRI ( Senior
Account Manager IFFCO, AONLA ) for his expert
guidance and encouragement for my project work.
I would also like to thank Dr. Brijesh Rawat
(Director, SPCJI OF CBM&E Khandari, Agra) for providing
whole hearted support required. I am even thankful
to Dr. Niraj Gupta (Coordinator of MBA F/T ) helped and
supported me with excellent faculty members who
helped in building a strong concept regarding
Research Methodology. I would also like to thank Dr.
Atul Mathur (Student Welfare Dean, SPCJI OF CBM&E) for
giving me expert guidance. I am thankful to my
friends who helped in the completion of my project,
last but not the least, I am thankful that power that
always inspires me to take right step in the journey
of my success life.
Date-
Place- (KRISHAN
KR. SINGH CHAUHAN)
LIST OF CONTENT
S.NO. TOPICS OF CONTENT
1 OBJECTIVE OF THE STUDY
2 ORGANIZATION PROFILE
3 AONLA UNIT
4 FINANCE & ACCOUNTS DEPARTMENT
5 INVENTORY MANAGEMENT
6 RESEARCH METHODOLOGY
7 CONCLUSIONS AND RECOMMENDATION
8 BIBLIOGRAPHY
OBJECTIVE OF
THE STUDY
OBJECTIVE OF THE STUDY
The objective of this project is to study the inventory system and its
effectiveness in IFFCO. The purpose of this study is to know the system of inventory
held by the company and to know the various techniques used by the company,
related with inventory. The foremost thing is the company and its unit profile and
research methodology. Company and its unit’s profile have been generated to get well
familiar with the company and research methodology was required so that inventory
system could be known for analysis.
Finally, by gathering the data from various departments like store
department, finance & accounts department etc., work has been started. A system of
inventory has been drawn on the basis of collection of data and research. Another
work that was being carried out simultaneously was to know the current policies and
system regarding inventory.
The main objective of this report is to check the efficiency and
effectiveness of inventory management system.
To analysis the level of investment in inventory by IFFCO.
To understand the working of different sections of Finance &
Accounts department
To study and analyze the policies and practices regarding
inventories adopted by the Aonla unit.
To observe the effectiveness of company’s inventory management
system.
ORGANIZATION
PROFILE
ORGANIZATION PROFILE
Indian Farmers Fertilizer Cooperative Limited
Type Cooperative
Founded New Delhi, India
(November 03 1967)
Headquarters New Delhi, INDIA
Key peopleU.S. Awasthi,
Managing Director
Industry Fertilizer
Turnover Rs. 32,933.30 Crore (2009)
Profit After tax Rs. 360.01 Crore (2009)
Website http://www.iffco.nic.in
The Chief Executive Officer of IFFCO, designated as Managing Director,
is vested with the overall responsibility of the affairs of IFFCO's day to day activities.
Dr. Udai Shanker Awasthi is Managing Director of IFFCO since 1993.
Indian Farmers Fertilizer cooperation limited (IFFCO) was established on
3rd November, 1967 as a multi-unit cooperative organization with broad objectives of a
augmenting, fertilizer production, ensuring fertilizer availability at farmers door step,
strengthening cooperative fertilizer distribution system and educating, training and
guiding the farmers for improving agricultural product.
During mid sixties the cooperative sectors in India was responsible for
distribution of 70% 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 supply. To over this lacuna, bridge the
demand supply gap in the country, a new cooperative society was conceived to
specifically center to requirements of the farmers. It is a federation of over 39,456
cooperative societies , most of them being village cooperation, spread over in 29
states and union territories & 158 Kisan Seva Kendra.
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 at Aonla was commissioned in 1988. IFFCO’s all plants have been achieving the
annual capacity utilization in the range of 122-120%.
In 1993, IFFCO had drawn up a major expansion programmed of all
the four plants under overall aegis of IFFCO VISION 2000 . 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
tones of Urea and NPK/DAP equivalent to 1.71 million tones.
IFFCO has made strategic investments in several joint ventures. Godavari
Fertilizers and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries
Chimiques due Senegal (ICS) in Senegal and Oman India Fertilizer Company
(OMIFCO) in Oman are
important fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFCO) in
Egypt is under implementation. As part of strategic diversification, IFFCO has entered
into several key sectors. IFFCO-Tokyo General Insurance Ltd (ITGI) is a foray into
general insurance sector. Through ITGI, IFFCO has formulated new services of benefit
to farmers. ‘Sankat Haran Bima Yojana’
Provides free insurance cover to farmers along with each bag of
IFFCO fertilizer purchased. To take the benefits of emerging concepts like agricultural
commodity trading, IFFCO has taken equity in National Commodity and Derivative
Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL).
IFFCO Chattisgarh Power Ltd (ICPL) which is under implementation is yet another
foray to move into core area of power. IFFCO is also behind several other companies
with the sole intention of benefiting farmers.
The distribution of IFFCO fertilizers is undertaken through over 36,000 co-
operative societies. The entire activities of distribution, sales and promotion are
coordinated by Marketing Central Office (MKCO) at New Delhi assisted by marketing
offices in the fields. In addition, essential agro-inputs for crop production are made
available to the farmers through a chain of 158 Farmer Service Center (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 belongs 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 agricultural extension activities for their
benefit every year.
At IFFCO, the 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.
LOGO OF IFFCO
The Logo any organizations is very important by which the company is
known to every one 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.R.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 & MISSION OF THE SOCIETY
VISION
To augment the incremental incomes of farmers by helping them to
increase their crop productivity through balanced use of energy efficient fertilizers; and
to make cooperative societies economically & democratically strong for
professionalized services to the farming community to ensure an empowered rural
India.
VISION 2010
In pursuit of sustained pace towards its growth, the society’s perspective
plan “VISION 2010” aims at attaining an annual turnover of Rs 15,000 crore by 2010.
For sustaining growth ensuring adequate return to the member shareholders on their
investment, IFFCO is exploring opportunities for diversification into other profitable
business areas apart from investment in fertilizer sector. Under the diversification plan,
the society would retain focus on farmer-oriented schemes and strengthening
cooperative infrastructure. Accordingly, the following business activities have identified
under the “VISION 2010”:
Installation of Ammonia Urea plants including acquisition of fertilizer
units;
Backward integration to meet feedstock requirements such as Phosphoric
Acid, Natural Gas etc;
Generation of Power;
Production and marketing of micro-nutrients, seeds, bio-fertilizers,
pesticides etc;
Value addition to Agri-products and marketing;
Information Technology and IT enabled services;
Establishment of Retain Chain in Urban and Semi-Urban location.
MISSION
To provide to farmers high quality fertilizers in right time and in
adequate qualities with an objective to increase crop productivity.
To make plants energy efficient and continually review various
schemes to conserve energy.
Commitment to health, safety, environment and forestry development
to enrich the quality of community life.
Commitment to social responsibility for a strong social fabric.
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.
Foster a culture of trust, openness and mutual concern to make
working a stimulating and challenging experience for stake holders.
Building a value driven organization with an improved and responsive
customer focus. A true commitment to transparency, accountability
and integrity in principle and practice.
To acquire, assimilate and adopt reliable, efficient and cost effective
technologies.
Sourcing raw material for production of phosphates fertilizers at
economical cost by entering into joint ventures outside India.
To ensure growth in core and non-core sectors.
To true Cooperative Society committed for fostering cooperative
movement in the country.
OBJECTIVES OF IFFCO
The main objectives of the Society are as follows: -
IFFCO is a cooperative institution of the farmers by the farmers.
Strengthening cooperation distribution system.
Educating and guiding the farmers.
Promoting nations growth through modern farming techniques.
Improving agriculture productivity, through balance fertilizer
applications.
To promote the activity for enriching the life of rural.
To achieve self reliant and self generated economy.
BUSINESS PRINCIPLES OF THE COMPANY
The principles of the company are as follows:
Appreciation of national need of generation up to optimum return of
investment.
To fair price of the product manufactured by the company is subsidy
to the farmers.
Total consumer satisfaction as a quality of product, price of the
product and better service after selling the product.
Effective management information system.
To increase the efficiency of the workers.
To maintain better human relation and discipline among all the
employees.
To develop good relation with customers.
MANAGEMENT
The representative general body (RGB), which is the general
body, forms the supreme body that guides the various activities of IFFCO.
The RGB consists of:
Members of board of Directors.
One delegate from each of the member societies holding shares of
the value of the Rs.100 thousand and above, such delegate shall
be as per the provisions of the Multi-State Cooperative Societies
Act/ Rules as amend from time to time.
Delegates to be elected from amongst the representatives of
members-societies (other than members holding shares of the
value of Rs.100 thousand and above) in each state/union territory
at the rate of one delegate foe every 200.
SHARE CAPITAL AND MEMBERSHIP
As on March 31, 2008, the paid up Share Capital of the Society increased to
Rs.423.93 crore from Rs.422.83 crore in the previous year. During the year, the
Society repatriated Share Capital of Rs.0.25 crore to weaker cooperative societies and
issued Shares valuing Rs.1.35 crore to member Cooperative Societies. The total
number of member shareholders of the Society as on March 31, 2008 was 39,564. The
Reserves and Surplus increased from Rs.3218.92 crore as on March 31, 2007 to
Rs.3264.73 crore as on March 31, 2008, indicating an increase of Rs.45.81 crore over
the previous year. Pursuant to adoption of Accounting Standard-15 (Revised) on
“Employee Benefits”, transitional liabilities of Rs.125.14 crore (Net of Deferred Tax)
was adjusted against General Reserve. The Net Worth of the Society as on March 31,
2008 increased to Rs.3688.66 crore from Rs.3641.84 crore in the previous year.
Rs. In Crore
Category Equity % Share
Government of India Nil Nil
Co-operatives 422.51 100
Total 422.51 100
The Share Capital of the Society was Rs.423.93 crore as on March 31,
2008 and the distribution of shareholding was as under:
FINANCIAL RATINGS
The Society’s excellent credit rating with bankers and rating agencies allows
access to Short Term funds including foreign currency borrowings at competitive rates.
Ratings assigned by different Rating Agencies to the Society were as under:
CRISIL Ratings
AA-/ Stable rating on IFFCO’s Long Term Borrowing Programme. The rating
indicates high degree of safety with regard to timely payment of interest and
principal on the instrument.
“P1+ (pronounced “P One Plus”) rating to IFFCO’s Rs.100 Crore Commercial
Paper Programme. This rating indicates that the degree of safety with regard to
timely payment of interest and principal on the instrument is Very Strong.
Governance and Value Creation (GVC) rating at “GVC Level 2”. This rating
indicates that the capability of the Society with respect to wealth creation for all its
stakeholders, while adopting sound corporate governance practices, is high.
FITCH Ratings
Short Term Rating of ‘F1+(Ind)’ to IFFCO’s Rs.100 crore Commercial Paper
Programme.
Long Term Rating of ‘AA+(ind)’ to the Long Term Debt Programme of IFFCO. The
outlook on the Long Term Rating is “Stable”.
CARE Ratings
Value of shares No of Shareholders No. of share held
1,000 36,813 3,45,884
10,000 2520 39,571
1,00,000 231 35,036
Total 39,564 4,20,491
PR 1+ (PR One Plus) rating to IFFCO’s Short Term Loans having tenure upto
one year.
‘CARE AA’ (Double A) rating to External Commercial Borrowings and other
existing long term borrowings having tenure of over one year.
INVESTMENTS
1. Godavari Fertilizers & Chemicals Limited. (GFCL)
The society has invested Rs. 8.25 crore in Godavari Fertilizers & Chemicals
Limited. Which accounts for 25% of the paid up share capital of Rs.32 crore of the
Company.
2. Indian Potash Limited (IPL)
IFFCO holds an investment of Rs. 2.68 crore in ICL with the shareholding of
34% in the paid up share capital of Rs. 9.53 crore of Indian Potash Limited.
3. Industries Chiniques Du Senegal (ICS)
IFFCO had entered into an agreement during the year 1982 with ICS
Senegal for setting up a project for manufacturing Phosphoric Acid wit the production
capacity of 3.13 MT. The Government of Senegal was amongst the other Co-
promoters of ICS along with IFFCO. IFFCO had invested equity of US $ 10 million till
2006.
4. IFFCO – Tokio General Insurance Company Ltd. (ITGI)
IFFCO – TOKIO GENERAL INSURANCE COMPANY LIMITED was
established as a joint venture company in the year 2000 for undertaking general
insurance business in India. Total paid up share capital of ITGI of Rs. 100 crore in
which 51% share is held by IFFCO by investing Rs. 51 crore.
5. OMAN India Fertilizer Company
IFFCO along with the other joint venture partners completed the OMAN India
Fertilizer Company IFFCO had 25% Shareholding amounted US $ 80 Million.
6. Kisan International Trading Dubai
IFFCO has set up a special purpose vehicle (SPV) VIZ Kisan International
Trading as A fully owned subsidiary on April 16 2005 with equity of UAE Dirhans 1
Million.
7. Acquisition of Paradeep Unit
IFFCO acquired the phosphatic unit at ORISSA (Paradeep) in Sep. 2005.
The plant has started complex fertilizer production in April 2006.
SIGNIFICANT HIGHLIGHTS
Phulpur unit was awarded the prestigious “Rajeev Ratna National Award-2005”
for excellence in Indian industries-“Best Pollution Control Gold Award” by a
national magazine ‘WHAT HALLS PUBLIC SECTOR TODAY’.
Kalol unit has bagged “Rotating Shield (Winner Award)” with certificate for the
lowest Disability Injury Index from Gujrat safety Council.
Kandla unit received the “FAI Award for the year 2004-05” for the best overall
performance of in complex fertilizers category.
Aonla unit received “National Safety Award” as runner-up based on largest
accident free area.
Prestigious “National Energy Conservation Award-2005” certificate of merit in the
fertilizer sector to phulpur unit”.
OPERATION RESULT
Production 71.68
Production 68.47
66
67
68
69
70
71
72
Lakh M Tonne
2008-09 2007-08
TOTAL PRODUCTION FERTILIZER
Production
40.68
39.63
3939.239.439.639.8
4040.240.440.640.8
Lakh M Tonne
2008-09 2007-08
PRODUCTION OF UREA
PRODUCTION OF UREA
58.69
54.29
52
54
56
58
60
Lakh Tonne
2008-09 2007-08
SALES-UREA
SALES-UREA
PERFORMANCE HIGHLIGHTS
Of IFFCO performance during 2008-09.
Highest Production of Fertilisers 71.68 Lakh MT (Previous Best 68.47 Lakh MT in 2007-08)
Highest Production of Urea 40.68 Lakh MT (Previous Best 39.63 Lakh MT in 2007-08)
Production of NPK/DAP/NP 31.00 Lakh Tonne (Previous Best 32.26 Lakh Tone in 2007-08)
Highest sale of Fertilizers 112.58 Lakh Tonne (Previous Best 93.24 Lakh Tone in 2007-08)
Highest sale of Urea 58.69 Lakh Tone (Previous Best 54.29 Lakh Tonne in 2007-08)
Highest sale of NPK / DAP/NP 53.89 Lakh Tone (Previous Best 38.95 Lakh Tonne in 2007-08)
Highest Turnover Rs. 32933 Crore (Previous Best Rs.12163 Crore in 2007-08)
Profit before Tax Rs. 441.95 Crore (Previous Best Rs. 380.52 Crore in 2007-08)
Profit After Tax Rs. 360.01 Crore (Previous Best Rs. 257.59 Crore in 2007-08)
Highest Marketing Productivity 7397 MT per employee (Previous Best 6158 MT/employee in 2007-08)
Plant Productivity 1376 MT/ per employee (Previous Best 1354 MT /employee in 2007-
08)
Lowest Energy Consumption - Urea 5.941 Gcal / Tonne (Previous Best 5.907 Tonne in 2007-08)
AONLA- UNIT
ABOUT AONLA UNIT
Year of Commissioning : 1988
Investment : Rs 651.6 Cr
Year of Expansion : 1996
Investment : Rs 945.7 Cr
Plant Capacity Consultant
1. Ammonia 1520 mt/d *2 Haldore
Topsoe(Denmark)
2. Urea 1310 mt/d *2 Snamprogetti(Itlay)
3. Product handling
plant(silo,
packing,
transport)
Silo1-45,000 mt
Silo 2-30,000mt
4. Steam & Power
generation
18 mw *2 TEC(Japan)
The flagship of IFFCO, Aonla Unit is located in the Gangetic Plains of Uttar
Pradesh in Bareilly district about 28 Km. South-West on Bareilly-Aonla Road. Aonla
unit, an Ammonia-Urea complex, is comprised of two phases; Aonla- I and Aonla-II.
The total capacity of Aonla unit including both phases is 8,91,000 MTPA for Ammonia
and 14,52,000 MTPA for Urea having two streams of Ammonia and Four streams of
Urea. The natural gas from HBJ pipeline being supplied from Bombay High is the
feedstock for the plants.
Aonla-I was commissioned in May, 1988 and Aonla-II in December, 1996.
Both Aonla-I & II units are achieving average annual capacity utilization of 116%.
IFFCO Aonla unit is one of the most efficient and quality-wise as well as
environment oriented unit so that M/s KPMG Peat Marwich, a quality registrar has
certified it as ISO: 9002 unit and M/s BVQL London has accredited as ISO:14001 unit.
At present 1150 employees are enrolled in the payroll of the unit.
HIERARCHY OF IFFCO
FINANCE DIRECTOR
TRANSPORT ADVISOR
EXECUTIVE DIRECTOR(PROJECT)
MARKETING DIRECTOR
MANAGING DIRECTOR
CHAIRMAN
GENERALMANAGER(KALOL)
EXECUTIVE DIRECTOR(GENERALMANAGER)
M)
GENERALMANAGER(KANDLA)
GENERALMANAGER(AONLA)
GENERALMANAGER(PHULPUR)
BOARD OF DIRECTORS
PLANTS OF AONLA UNIT
There are mainly four plants in the unit namely
1. AMMONIA PALNT
2. UREA PLANT
3. PRODUCT HANDLING PLANT
4. STEAM AND POWER GENERATION PLANT
1. AMMONIA PLANT:
There are two streams of Ammonia Plant having the capacity to produce
2x1520 MTPD of liquid ammonia. The technology is based on Haldor Topsoe,
Denmark process with natural gas and naphtha as main raw material.
2. UREA PLANT:
There are four streams of Urea Plant having the capacity to produce
2x1310 MTPD of urea fertilizers. The technology is based on snamprogetti, Italy
on ammonia stripping process.
3. PRODUCT HANDLING PLANT:
Product handling plant is composed of Urea storage known as Silo and
packing and transport activities. Two silos of 45,000and 30,000 MT capacity
have been provided to Urea product to ensure continuous urea production even if
it is not taken off due to non- availability of rail wagons or seasonal demand
fluctuations.
4. STEAM AND POWER GENERATION PLANT:
To meet the continuous power supply needs of the main plants, captive
power plant and stem generation facilities have been provided. In this plant, two
gas turbines each having the capacity of 18MW along with heat recovery steam
generation unit has been provided to cater to the plant needs of power and
steam. Additionally, HRU unit of Ammonia –II add to the steam supply of the
complex.
COMMISSIONING
AONLA – I Ammonia Plant May 15, 1988 Urea Plant May 18, 1988
AONLA – II Ammonia Plant Nov. 16, 1996 Urea Plant Nov. 16, 1996
INVESTMENT
AONLA – I Rs. 651.6 Crore
AONLA – II Rs. 954.7 Crore
COMMERCIAL PRODUCTION
AONLA - I July 16, 1988
AONLA – II July 25, 1996
PRODUCT CAPACITY
AMMONIA 891000 Tones per Annum
UREA 1452000 Tones per Annum
TECHNOLOGY
AMMONIA PLANT Haldor Topsoe, Denmark
UREA PLANT Snamprogetti, Italy
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 Bareilly–Aonla Bareilly
highway.
Area under Plant 260 Hectares
Area under Township 220 Hectares
ORGANISATION CHART AT AONLA UNIT
Sr. General Manager
General Manager General Manager
JGM/CMProduction
JGM/CM Maint
JGM/CM Technical
JGM/CMUtility
JGM/CM Communication
JGM/CMF &A
Ammonia Plant
Urea Plant
ProductHandling
Fire & Safety& Env.
Traffic
Mechanical
Electrical
Instrumental
Civil
Process
Design &
Drawing
Library &Document
Laboratory
Training & Devp.
General Engg.
Power
Offsite
Purchase
Store
F & A
JGM/CMSystem
System
AONLA UNIT HAS BAGGED FOLLOWING AWARDS
Best project implementation (2nd Prize) by Ministry of Programmed
Implementation, Govt. of India.
Technical Film “New Horizons Aonla Projects” 2nd Prize by FAI.
National Energy Conservation Award – 1995 (1st Prize) in the Fertilizer Sector by
Ministry of Power, Govt. of India.
Certificate of Merit from NPC for performance in the year 1993-94.
Best managed Work Force award from Hewitt Associates CNBC TV 18.
FAI runner-up award for Phulpur Unit I for 2003-04 for the Best Overall
performance for Nitrogen.
Certificate of Hon our received for Kalol and Kandla units from Gujrat Safety
Council for 2003.
Corporate Environment Award 2002-03 (Certificate of participate from Tefor Aonla
Unit).
National award for excellence in energy management -2006’ from confederation
of Indian industry and has been certified as excellent energy efficient unit.
Indian industry (CII) and as been certified as ‘Excellent Energy Efficient Unit.’
ICQESMS-2007 Excellence Award’ for the papers presented on ‘Safety & Health
in chemical industry and ‘Hazard identification &Risk Management’ authored by
Shri N. C. Nigam , Shri A. K. Maheswari and Shri N. P Rao.
FINANCE & ACCOUNTS
DEPARTMENT
FINANCE & ACCOUNTS DEPARTMENT
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. 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:
1. Managerial finance function
2. 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.
Finance & Accounts Deptt. At A Glance
The Finance & Accounts Department. of IFFCO, Aonla is divided into 3 sections, to facilitate smooth and easy functioning and control.
Finance and Account Deptt.
Books Section
Financial Concurrence
Section/ Budget
Bill Section
Payroll & Taxation Section
PSL Section
SupplySection
Note Sheet Payment
Sec.
Work order section
Line Of Control in Finance &Account Department
H.O.D.Chief Manager (F & A)
Senior Manager (F&A)
Manager Account
Senior Manager (F&A)
Manager Account
Manager Account
Manager Account
Deputy Account Manager
Deputy Account Manager
Deputy Account Manager
Deputy Account Manager
Senior Account Officers
Account Officers
Junior Account Officers
Senior Accounts
Junior Accounts
The various area covering under the preview of 3 subsections are as follows:
BOOKS SECTION
This section basically deals with accounting function, maintenance and
keeping of records.
The various functions include:
Books: Preparing and maintaining balance sheets.
FICC (Fertilizer Industries Coordination committee)
Costing & Pricing Cells Reporting
PAY ROLL SECTION
Aonla Unit undertakes processing of salary and other staff related payments
of all employees through Human Resource Management System (HRMS). It is an
integrated package based on Oracle DBMS. The System integrates Personnel &
Administration Department and Finance & Accounts Department.
Simultaneously, Financial Accounting System (FAS) which is also based on
Oracle DBMS has been launched in F&A DEPARTMENT through which General
Ledger Sub Ledger of Employees are maintained and Trial Balance and Financial
Accounts are generated. There is also inter- relation of HRMS and FAS so that cash
payment/receipt vouchers, Bank Payment Vouchers and Journal Vouchers generated
in HRMS are automatically posted online to Payroll Section of Finance & Accounts
Department.
Taxation Section
As per the status and operations of the society, It deals with the following Taxes:-
Central Excise Duty Income Tax Service Tax Sales Tax
Central Excise Duty
As we know that this duty is charged by Central Government on the goods
manufactured. IIFCO mainly produce ammonia and urea at Aonla plant. So 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.
ROLE OF THE FINANCIAL MANAGEMENT
Finance is life blood of business that’s why the finance function assumes more significance because it plays important role in successful performance of all operational & managerial function though there are other basic functions also like production, marketing etc.
The Industrial development of the last 60 years or so has made finance and financial management an indispensable part of business management.
“A firm’s success &even survival, its ability and willingness to maintain production and to invest in fixed or working capital is to a very considerable extent determined by its financial policies, both past and present.” In fact the financial manager is now being placed at central focal point of modern corporate organization due to organizational changes &revolutionary changes in financial management .In addition to Ezra Soloman
“Financial Management is properly viewed as an integral part of overall management rather than as a staff specialty concerned with fund raising operations. In addition to raising funds financial mgt. Is directly concerned with production, marketing & other functions with in an enterprise whenever decisions are made about the acquisition or distribution of asset,”
It is often said that now a days, financial mgt. Watches &cases various development activities liquidity & profitability of the firm.
Few activities to be cased for:-
High cost of financing the risky investment due to capital intensive environment.
Diversification by the firm of various business, markets & products. A high rate of inflation affecting firms forecast and planning. Technological changes at high speed & need for more expenditure on R& D. Flow of information at rapid speed causing the use of high speed computers.
Last but not the least, the sound financial decision not only affect the production and distribution but also affect the organization’s profitability and liquidity.
FINANCIAL PERFORMANCE
Inspite of constraints in availability of raw materials, and inordinate delays
in receipt of large subsidy amounts from Government of India, IFFCO has yet again
delivered an impressive financial performance in all its major parameters, namely,
Revenue Growth, Operating Margins and Resource Utilization testifying to robustness
of its Corporate Strategy of creating multiple drivers of growth. This was possible due
to higher production, sales volume and improvement in operating efficiencies. The
Society achieved the highest ever
Sales turnover of Rs.12163 crore. This represents an increase of 18 per
cent over the previous year. It was brought out by higher volume of Sales of Fertilizer
materials, which increased to 93.24 lakh tonne fertiliser during 2007-08 as against
86.10 lakh tonne in the previous year. The performance is even more satisfying when
viewed in the light of challenging business environment of fertiliser industry. Some of
the key financial ratios highlighting the Financial Performance of the Society were as
under:
Key Parameters 2008-09 2007-08
Operating Profit to Sales (%) 6.50 7.80
Return on Capital Employed (%) 3.12 3.13
Pre-tax Return on Net Worth (%) 11.16 10.31
Current Ratio 2.41 4.21
Debt Equity Ratio 3.23 1.84
CASH PROFIT
838
483
620 725642
0
100
200
300
400
500
600
700
800
900
2004-05 2005-06 2006-07 2007-08 2008-09
Rs. in
Cro
re
CASH PROFIT
3301
35553642 3689
3959
2800
3000
3200
3400
3600
3800
4000
Rs. in crore
2004-05 2005-06 2006-07 2007-08 2008-09
NET WORTH
NET WORTH
Equity Share capital
426.28
423.93
422.5 423 423.5 424 424.5 425 425.5 426 426.5
2008-09
2007-08
Rs. in Crore
Equity Share capital
17,303.77
10,998.49
0.002,000.004,000.006,000.008,000.00
10,000.0012,000.0014,000.0016,000.0018,000.00
Rs. in Crore
2008-09 2007-08
NET ASSETS EMPLOYED
NET ASSETS EMPLOYED
INVENTORY
MANAGEMENT
Concept of Inventories
Accounting Standard -2
Accounting Standard 2 determines the valuation of inventories, on the basis of
cost price or net releasable value which ever is low. AS-2 provides for valuation of
inventories.
What are inventories?
Inventories are assets:-
Hold for sale in the ordinary course of business.
In the process of production for such sale.
In the form of materials or supplies to be consumed in the
production process or in rendering of services.
Inventories encompass finished goods produced or work in process being
produced by the enterprise and include materials, maintenance supplies,
consumables, loose tools awaiting use in the production process.
Types of inventory
1. Inventory of raw materials
2. Inventory of stores and spare parts
3. Inventory of work-in-progress
4. Inventory of finished goods
GENERAL OUTLINES
Inventories constitute about 60% of current assets of companies of India.
The manufacturing companies hold inventories in the form of raw materials, work in
process, finished goods, stores and spares, chemicals, lubricants etc.
Three motives for holding inventories:-
To facilitate smooth production and sales operation (transaction motive),
To guard against the risk of unpredictable changes in usage rate and delivery time
(precautionary motive)
To take advantage of price fluctuation (speculative motive)
Inventories represent investment of a firm’s funds. The objective of the
inventory management should be the maximization of the value of the firm. The firm
should therefore consider costs, return, risk factors in establishing its inventory policy.
Two types of cost are involved in the inventory maintenance:-
1. “Ordering cost” requisition, placing of order, transportation, receiving,
inspecting, storing, clerical staff, are fixed per order. Therefore, they decline as
the order size increases.
2. “Carrying cost” warehousing, handling, clerical staff, insurances and taxes.
Carrying costs vary with inventory holding. As order size increases, average
inventory holding increases and therefore the carrying costs increase.
The firm should minimize the total cost (ordering + carrying). The economic
order quantity of inventory level occur at point where total cost is minimum
EOQ = √2AS/C,
where A= annual requirement, S = ordering cost per unit, C = carrying cost per
unit per annum
When should the firm place an order to replenish inventory?
The inventory level at which the firm places order to replenish inventory is called
re-order level. It depends on lead time, usage rate
Re-order level = lead time * usage rate
Lead time is the time normally taken in replenishing inventory after the order
has Placed.
Under uncertainty about lead time. Therefore firms maintain safety stock
which provide buffer or cushion to meet contingencies.
Re-order level = safety stock + lead time * usage rate
A firm which carries number of inventories that differ in value, can follow a
selective control system. ABC analysis classifies- A category consists
highest value, B category consists high value items, C category consists
lowest value item. Tight control may be applied for high value item and loose
control for low value item.
Large number of companies these days follows the total quality
management (TQM) system which requires companies to adopt just in time
(JIT) and computerized system of inventory.
How are inventories valued under AS-2
Inventories are valued at the lower cost and net realizable value. The cost of
inventories should comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present
location and condition.
The cost of purchase consists of the purchase price including duties and
taxes freight inwards and other expenditure directly attributable to the
acquisition. Trade discount, rebate, duty drawback and other similar items
are deducted in determining the cost of purchases.
The cost of conversion of inventories includes costs directly related to the units of
production such as direct labor.
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:
i) Raw Materials, Packing Materials, Construction Materials, Loose Tools in
Stock, Chemicals & Catalysts in Stock and Stores & Spares at monthly
weighted average cost.
ii) Stock-in-Process at direct cost and an appropriate portion of overheads.
iii) Finished Goods:
- Manufactured Nitrogenous Fertilizers covered by Group Concession Scheme at
Annualized 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.
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.
CLASSIFICATION OF MATERIALS AT IFFCO
IFFCO is engaged in the production of fertilizers. It is one of the leading
industries of India. The final product of the company is UREA; which is produced with
the help of Ammonia and Carbon dioxide. CO2 is obtained directly from air and
Ammonia is produced at Ammonia plant using the following materials:
Naphtha
Natural Gas
RLNG
(Where inventory for Natural gas and RLNG is nil.)
Consumption of Raw Material, Utilities and Stores
The Society’s greatest strength is its cost competitiveness and customer
focus. During the current year, the Society further reduced its manufacturing costs by
better production management, which has contributed to increase in Operating Margin.
The Society is also pursuing many operational excellence programmes so as to
optimize the costs and achieve higher operational efficiency.
Inventory Consolidation
A data warehouse has been created at HO where the Inventory data of all
the Plants except Paradeep is being replicated automatically due to which information
like availability of any item of stores & spares at any Unit, status of surplus and non-
moving inventory can be accessed on line by the persons to whom access rights have
been assigned. The System is expected to help in optimizing the inventory of stores &
spares at the Units.
New Material Management System (MMS)
A new material management system has been developed at Kalol with
active input and support of other units. The system has been implemented at Kalol
and it is likely to be implemented in Phulpur, Aonla and Kandla by June 2008. The e-
procurement system has been modified to support both New MMS and old MMS.
Plant Maintenance System (PMMS)
PMMS Phase-I having modules on Equipment Data Bank, MWR, Log Book,
History card, Preventive Maintenance Schedules and Shutdown have been
successfully implemented in all the Units except for Paradeep. It is expected to help
effective Planning and Decision making related to Plant Equipment Maintenance.
Consumption of Raw Materials, Stores etc.
2008-09 2007-08Raw Materials 13997.22 6,646.44
Stores and Spares 108.34 96.26
Chemicals Catalysts 41.38 38.22
Packing Materials 200.99 170.43
Power, Fuel and Water
981.8 756.48
6,646.44
96.26 22222233345fsdafsdfdscx
38.22
170.4
756.4
Besides these raw materials, certain stores and spares must be considered.
General Spares
General Stores
Chemicals
Steal
Cement
Catalyst
MATERIAL HANDLING
Material Handling includes moving, packaging and storing all the materials
used by the firms. The material handling systems is judged by how it serves the
production into most economical cost.
Hence, it is divided into sections:
1. Purchase section
2. Stores section
1. PURCHASE SECTION
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 plays
very important function as it is 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.
There is a distinct difference between “buying and purchasing”, the later
involving knowledge of various vendors, their prices, comparison of the prices, actual
buying, after sale service and follow-up, besides payment terms etc.
The purchase department of an organization must know following things:
Knowledge of the materials
Source of material- Vendors
Reasonable price
PURCHASE PROCESS
RECOGNITION OF NEED: The purchase function performs whenever
something is needed and which is not available in store department at that particular
time.
REQUISITION TO PURCHASE: This is intimation to the purchase
department by the indenting department regarding the requirements of material. The
indenting department gave its requirement on “Material Purchase Requisition (MPR)”.
In MPR no. of information required from intending department:
Name of items and their code no.
Section & Department code no.
Amount required
Technical and other specifications
Estimated price
Delivery date
Suggested vender
RECORD AND NUMBERING OF REQUISITIONS: All purchase requisition
received in the Material/ Purchase Department shall be entered department wise in the
computer using materials management system module. The indenting Department
shall allot a number to each requisition and endorse the same on all copies of the
requisition.
MRP SCRUTINY: Next step involve scrutinizing of the MRP to certify the
genuine of the need. For this, approval is to be given by higher authority of the
intending department. Next, MRP is sent to the store department to check whether the
material is available or not. If it is not available, then MRP is sent to the purchase
department for further action. Basis of scrutiny is of three types, namely:
Approval Scrutiny
Budget Scrutiny
Technical Scrutiny
SENDING OF ENQUIRY / INVITATION TO BID :
Items can be classified in to two categories keeping in view the
purchase function:
Proprietary Items: These items are bought from a particular
supplier/vendor.
Nonproprietary Items: These items are those items for which there is no
restriction on purchasing from a particular supplier/vendor. Enquiry is sent in
order to know the prices and other terms and conditions of vendors. It should
stipulate that:
1. IFFCO reserve the right to accept or reject any /all bids without assign any
reason.
2. FFCO shall have the right to place the order/award the work to one or
more vendor/contractor.
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.
Normally, bids shall ask in two envelopes in case of single stage bidding as
below:
1. Envelope I Earnest Money deposit
2. Envelope II Base price as per the terms and conditions of ITB
and alternate price bid, if any Alternate bids shall be based on alternative
designs, materials, competition schedule, payment and other terms and
conditions. The alternate bid shall not be considered, if not accompanied
with base bid.
RECEIVING OF OFFERS
After all the bids have been submitted the tenders are open before tender
committee to compare the quotations-Quotations comparison statement (QCS) is
made and bid with lowest quotation is generally chosen. QCS is also sent to the
technical depth and in consultation with it one more than one offer are chosen, giving
quality and price the top priority.
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.
The Purchase Order shall be raised by the Purchase Department in six
copies shall be numbered in the same manner as Purchase Requisition.
Original + 1st and 2nd copy to the Vendor- with a request to return 1st and 2nd
copy duly signed as a token of his acceptance.
3rd copy to the Material Department
4th copy to the Store Section
5th copy to the Accounts Department
6th copy to the Indenting Department
As soon as 1St and 2nd copies are received from the vendor duly accepted,
they will be distributed as under:-
1St copy to the Accounts Department
2nd copy to the Materials Department
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 and then sent to the store where the store
releases the “STORES RECEIPT VOUCHER” (SRV). From here it is delivered to the
vendor.
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 indenter, manager (F& A), materials
manager & general manager are sought.
PAYMENT AGAINST PURCHASE
There are various modes of payment-
1. ADVANCE PAYMENT TO SUPPLIER:- Advance payment shall be made
to the suppliers only in such cases where it is specifically provided 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 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
confirms 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:-
Purchase order number
Whether materials supplied are as specified in the purchase order.
Quantity supplied.
Price basis whether F.O.R. or Ex-works
Whether taxes are as per the order.
Whether bank charges are claimed as per the purchase order.
Other terms and conditions of the purchase order.
Where there is delay in supplying the material and the payment through
bank is 90 % to 95 %. It should be ensured that penalty for delay, as provided in the
purchase order, is recovered before releasing the balance payment. Where payment
required to be made, a clarification is to be sought from materials depth 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.
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. OR
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.
ABOUT IMPORTED MATERIALS
Materials procured may be either indigenous or imported. For major projects
the foreign contracts are normally finalized at head office level and payment against
these contracts are made by the concerned unit. Where the order has been placed by
the unit directly, they will make the payment to the foreign party by debiting to the
appropriate advance account. If the payments are made through L/C against
documents, the same shall be debited to advances to foreign suppliers account. On
receipt of material at site, project engineer shall prepared the MRR and sent same to
project accounts for clearing the supplier’s advance account for material. Clearing and
handling of imported material is the responsibility of material department on the arrival
of ship the materials will be cleared with reference to the invoices and bills. For any
short landing or brokerage between the port of dispatch and port of destination, claim
action shall be taken by them.
MATERIAL CODING
In every organization it is very difficult to maintain the stock items in case of
large number of items. So the need of coding is created. For the material coding the
account persons assign the codes for each item of stores. So in this away every item
has its code, and code is called material code. Material coding facilitates the account
persons and store manager or anchorage to maintain the transactions of the items
whether of receiving or of issuing.
Every item maintained by its code in the stood as well as in the store
accounting section. The item / material codes remain 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 inventories the full details of that transaction is send to the
store accounting section also, because the computers of stores and accounting section
are connected in 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.
MATERIALS: PACKING & DISPATCH
All packing, boxing and crating and protection shall conform to the
specification or requirements of the order. The seller shall be held liable for damage or
brokerage to the goods due to defective or insufficient packing, marking as specifically
advised in the order or dispatch instruction shall be done by seller in decibel paint and
in such manner to ensure that the same is clearly visible. All materials shall be
dispatched by rail / road freight paid and the railway receipt / lorry receipt shall be
posted to the concerned anchorage of IFFCO.
INSPECTION OF MATERIAL
The material department shall coordinate with other departments and
arrange inspection of material at vendor’s shop prior to dispatch. Inspection of
materials in other cases shall be carried out on receipt of materials at site. Only
materials those cleared by the inspection will be taken on charge in stores. The person
inspecting the material will sign on the stores receipt voucher in token of having
inspected and accepted the material.
DAMAGES/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. 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 billion sections 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.
ACCOUNTING OF RAW MATERIALS
Based on the projected consumption requirement of raw materials, the
procurement action is taken by the commercial department at head office. Described
below is the accounting requirement of major raw material.
IMPORTED PHOSPORIC 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 thee landed cost of imported ammonia.
However after the abolition of price control on complex fertilizer. 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 the
payments the inter unit debit advice is sent to plant. On receipt of the payment advices
the supplier’s 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 fertilizers. 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.
ACCOUNTING REQUIREMENT FOR STORES AND SPARES
A summary account is maintained monthly to analyze the difference in
quantity as well as value of each item.
GENERAL STORES AND SPARES: The stores and spares in Material
Department of IFFCO are divided into different groups; where each group as well
as individual items is given specific code. They are enumerated below:
INVENTORY SPARES: This group consists of Ammonia and other spares.
There are number of items in total under Inventory General Stores i.e.
Specific fittings
Valves
Bolts, nut ,stud, fasteners
O-Rings , gaskets, sheets, packing
Welding material
Abrasives
Industrial gases
Adhesives, cleaning, chemicals
Instrument items
Electric items
General items
INVENTORY LOOSE TOOL ACCOUNT: consists of hand tools, M/C tools, Rigs
and fixtures.
INVENTORY CATALYST ACCOUNT: Catalyst
INVENTORY CONSTRUCTION MATERIAL CEMENT ACCOUNT: Cement is an
important material for construction purposes.
INVENTORY CONSTRUCTION MATERIAL STEEL ACCOUNT: Structural
CHEMICALS
Chemicals are surely most important part of materials used in the
production process. The different chemicals constitute the following:-
Hydrochloric acid (HCL): procured from either United Alkalies or from
Bhatia Acid.
Caustic Soda (NaOH): is procured from United Alkalies
Sulphuric Acid (H2SO4): is purchased from K.L.Singhania& Sons.
Liquid Chlorine: is purchased from Kanoria Chemicals
Alum
Ferrous Sulphate
Hydrated Lime
Liquid Nitrogen
Furnace Oil
High Speed Diesel (HSD)
PACKING MATERIAL
HDPE/Jute Bags are procured from Kanpur Plastipack Ltd. and Modern
Laminators Ltd. they are in 2 different forms:- 25 kg. And 50kg. For both units of Aonla.
2. STORE SECTION
Store of any organization is of vital importance. Its is the responsibility of
stores to receive the material required by the organization’s operations to keep it
properly & to issue it as when required. The stores are divided in to three subsections
for greater flexibility like receipt, custody, issues and spares.
Store has following warehouses:
Main Store.
Cement godown.
Petrol Pump.
Cable yard.
Chemical godown.
Paint godown.
PDIL store.
Accounting of receipts, issues, returns and transfer of materials
1. The 2nd copy of material receiving report after the pricing shall be posted on to
the stores accounts section to scrutinize. The final check list entry in Price Stock
Ledger is processed. The section shall ensure that all receipts, issues, returns
and transfers vouchers raised by the stores section are finally posted in PSL.
2. The issues of notes shall be price on monthly weighted average rate basis after
accounting the last receipt of material.
3. Inter unit/ division transfer of materials shall be accounted at cost basis.
4. The PSL balance for each category of stores shall be reconciled value-wise with
the control account balance in the ledger wherever possible. Stores accounts
section shall draw out reconciliation on monthly basis.
5. Roper classification regarding the nature of expenditure (whether capital or
revenues) shall be given for capital expenditure, job description/ cost centre in
detail shall be given. Job details shall also be given for works maintenance
account.
6. If the materials are issued to operation or maintenance account, the cost centre
code/ the service centre where the material has been consumed, drawing cost
centre code is to be given in issue note and return note.
For material returned to stores, return note shall be priced by the stores
accounting system. Section at the same rate at which it was issued and the value shall
be debited to the relevant code of stores and spare part inventory account by credit to
the cost center from where the material is received back.
12 digit codification scheme of inventory PSL
A starting code plant description
(1st 2 digits)
11 ammonia
12 urea
13 offsite
14 SGPG
15 Product handling
81 project ammonia
82 project urea
83 project offsite
84 project SGPG
85 project product handling
89 project general items
90 lab
91 mechanical workshop
92 township
93 net plant
94 general items
B next 1 digit stands for type of equipment
C next 2 digit stands for type of equipment
D next 2 digit stands for sub-assembly with
equipment
E next 3 digit stands for parts within the sub-
Assembly
F next 1 digit sands for unique identification
G next 1 digit stands for special
identification
Like
1 stands for repaired item
0 stands for new item
CLASSIFICATION OF STORE SECTION
There are two sections under Stores section:
I. Custody section
II. Receipt section
RECEIPT SECTION
This section is responsible for receiving the materials and inspecting them.
The process involves following steps.
A. The document regarding the material may be sent to the stores, purchase,
concerned dep’t. But ultimately they have to be send to stores.
The following documents are:
Goods receipt / railway receipt / challan
Form 31
Excise duty
Toll tax
B. The particulars of the document are noted in the carriers receipt register (CRR)
C. After the entry in the register, the document is given to an agent termed as
handling contractor. He will collect the material Consignment’s cases are intact. If
not he will ask for open delivery. He then has to deliver the goods to stores. In
case of damage he has to give a certificate. Some consignment may without
document i.e. door delivery and is some cases it may be face to face delivery.
D. 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
E. The next operation is filling the stores receipt vouchers (SRV) here the quantity
mentioned in challan and purchase order are compared, SRV Has 7 copies, two
for accounts and one for each purchase, stores, indenter, master file & custody
section.
Inspection is done by the indenter:
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, indenter & 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.
Direct charge SRV (DCSRC) is prepared when indenter wants material directly
from receipt section.
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 some one 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 card. When
a particular part is returned then this received in stores, by internet stores return
voucher (ISRV). After issuing the material the number of issue and the quantity issued
is noted in SIV control registers.
ACCOUNTING FOR STORE DEPARTMENT
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.
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.
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 STORES ACCOUNTING SECTION
The section dealing with accounting of stores in the finance department shall
have following functions:-
Accounting of receipts, issues, return and transfer of materials.
Accounting of imported materials for capital works and operations.
Associating with stores section for stock verification.
Valuation of stores items is done on weighted average basis.
RECEIPT /ISUES/ RETURNS TRANSFER OF MATERIALS
The 2nd 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.
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.
For clearance of imported materials, amount deposited for custom duty in the PD
account etc. Shall be cleared against individual MRR’s on receipt bill of entryThe
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.
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, incase the shortage is more than the consumption norms, the same
should be recovered from the contractor.
For all issue notes relating to works contracts, one copy of the price issue notes
may be sent to the work accounts section to enable them to debit the contractor’s
account.
A monthly abstract also be prepared and passed on to works accounts group for
check.
Details for receipts and issue of materials received / issued on loan shall be
maintained by the store account section loan transactions shall be approving by
the competent authority. It is the responsibility of material department to take
action to square up the transactions within the reasonable time.
Inter unit transfer of material shall be accounted at cost basis freight and other
incidental charges shall be borne by the transferee unit.
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.
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.
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.
Under the mechanized system of store accounting, all documents, such as MRR’s
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 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.
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 foe 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.
PHYSICAL VERIFICATION OF MATERIALS
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.
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 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.
USE OF ABC ANALYSIS FOR PHYSICAL VERIFICATION OF
MATERIALS
The inventories for other items such as stores, spares, construction
materials etc. are also verified every year keeping in view ABC analysis of stock items
value and exercise of verification may be completed by March every year. For the
purpose of verification of stores, chemicals & spare parts shall be classified in to A, B,
C categories.
CATAGORIES VALUE(Rs. PER
UNIT)
QUANTUM OF
VERIFICATION
CATEGORY A Above Rs. 50000/- 100%
CATEGORY B 10001 to 50000/- 70%
CATEGORY C Below Rs. 10000/- 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. 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.
RECONCILATION AND ADJUSTMENT ETC
After all 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
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.
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.
EFFICIENT INVENTORY CONTROL
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 of cost thus, cost is controllable to
some extent; proper planning and controlling of inventories are of great importance.
Inventory control is planned method of determining what to indent, so that
purchasing and storing cost is to be minimum without affecting the production or sales.
Without proper control inventories have a tendency to grow beyond economic limits.
Funds are tied up unnecessarily in surplus stores and stocks. Productive operations
are stalled, and finances of the plant are severely sprained. Lack of control over
inventory also leads to excessive consumption and wastage, as operatives are liable to
become careless with irrational supply of materials.
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:-
To maintain large quantity for smooth operation and efficient customers’ services.
To maintain only a minimum possible inventory because holding costs and
opportunity cost of funds invested in inventory.
OBJECTIVE OF INVENTORY CONTROL
Scientific control of inventories should serve the following purposes:
To provide the continuous flow of required materials& spares parts and
components for efficient uninterrupted flow of production.
To minimize the investment in inventories stock keeping in view operating
requirements.
To provide for efficient store of materials so that inventories are protected from
losses by fire and threat and handling time and costs are kept at minimum.
To keep surplus and absolute items to minimize uncertainty..
To maintain inventory against deterioration, obsolescence and unauthorized
use.
To ensure that finished goods are available for delivery to customers just to
fulfill the order.
TECHNIQUES OF INVENTORY CONTROL; USED AT IFFCO
Reduction of surplus stock is an essential requirement inventory control. Various techniques are available to solve the various types of problems associated with inventory control:-
Min-Max plan
Order cycling system
Fixation of various levels
Use of control ratios
Review of slow and non-moving items
The ABC Analysis
Min-Max plan
In this plan analyst lays down a maximum and minimum for each stock item. Minimum level establishes the reorder point and order is placed for quantity of material, which will bring it to the maximum level.
Order Cycling System
In this system, quantities in hand of each item or class of stock are reviewed periodically (30, 60.90 days). In that, if it is observed that stock level of a given item will not be sufficient till the next schedule review keeping in view of its probable rate of depletion, an order is placed to replenish its supply.
Fixation of Various Levels
Certain stock levels or fixed levels are given below:-
Maximum Level
It represents minimum quantity above which stock should not be held at any time.
Maximum stock = Re-order level + Reordering quantity – (Minimum level Consumption * Minimum Re-order period)
Minimum Level
It represents the minimum quantity of stock that should be held at all the time.
Minimum Level = Reorder level – (Normal consumption * Normal Re-order period)
Safety Level
Normal issues of stock usually stopped at this level and made only under specific instructions.
Safety stock level = Ordering Level – (Average rate of consumption * Re-order level) OR = (Maximum rate of consumption – Average rate of Consumption) * Lead Time.
Ordering Level
It is a level at which indents should be placed for replenishing
stocks.
Ordering Level = Minimum level + Consumption during the lag period.
OR
= Maximum Consumption* Maximum re-order period.
USE OF CONTROL RATIOS
Inventory turnover ratio helps management to avoid capital being
locked Up unnecessarily. This ratio reveals the efficiency of stock keeping.
Inventory turnover ratio =Cost of materials consumed / Cost of average stock
held during the period
Where,
Cost of average stock = [Cost of opening stock + Cost of closing stock] / 2,
Inventory turnover ratio = Days during the period /Inventory turnover ratio.
REVIEW OF SLOW MOVING AND NON- MOVING ITEMS
Stock turnover ratio should be as high as possible. Loss due to
obsolescence be eliminated or these items used in some profitable work. Slow moving
stock should be identified and speedily disposed off. The speed of movement should
be increased. The turnover of different items of stock can be analyzed to find out the
moving stocks.
The percentage of slow moving stores = Slow moving stores / Total Inventory
THE ABC ANALYSIS
With the numerous parts and materials that enter into each and every
industrial production, inventory control leads itself, inventory and foremost, to the
problem of analysis. Such analytical approach is popularly known as ABC (ALWAYS
BETTER CONTROL) Analysis.
This Plan is based upon segregation of arterial for selection control. It
measures money value i.e. cost significance for each materials item in relation to total
cost and inventory value. The logic behind is that the management should study each
item of stock in terms of its usage , lead-time , technical or other problems and its
relative money value in the total investment in inventories. Critical, i.e. high value items
deserve very close attention, and low value items need to be devoted minimum
expense and effort in the task of controlling inventories.
INVENTORY SOFTWARE
There is very powerful software in IFFCO for inventories of the various
items. This software holds all the transactions of the stocks. So this software helps
much in maintenance of stocks. It makes very easy to account persons to maintain the
transactions of inventories.
A part of this software is installed on the systems of the stores, whenever a
transaction is made in the store, the details of that transaction is reaches to the
systems of the store accounting section, because both the systems are connected in
the local area network (LAN). So with the help of LAN environment it is very easier to
accountants to retrieve the information regarding the transactions made by the stores.
Apart from this, this software has the variety of qualities which we can discuss with the
help of menus of software. There are six different menus in this software these are as
follows:
Data entry
Queries
Reports
Processing
Calculator
Exit
Guidelines for identification, valuation /disposal of obsolete, surplus
non moving items of stores and spares.
The society is following a system for identification and valuation of surplus,
slow, non moving and obsolete items of inventory of spares and stores at the end of
each financial year and thereby making a suitable adjustment based on estimated
realizable value of such inventory.
1) Identification of obsolete, non moving and
surplus items:-
The identification of obsolete surplus and slow /non moving items of spares
and stores is proposed to carried at after complete technical evaluation of all such
items of stores and spares etc. by a committee constituted by the unit
manager/headed as per following criteria.
Obsolete items :- i) Redundancy items of existing equipment/ system.
ii) Obsolescence of spares.
iii) Aging of machinery and equipment.
Non moving/slow moving items:-
The non moving and slow moving items are to be identified for the period of
five years ,seven years and ten years by the committee subject to conformation that no
transaction has taken place through SRV and SIV in the same code.
Surplus items:-
i) items which are in excess of the needed consumption can be considered as surplus
items, if such items are lying in inventory beyond 4 years and there anticipation of the
consumption in the next 3 years
ii) items may not be declared as surplus where purchase order has been issued and
such items are required during the period under review .
2) Valuation of obsolete items, non moving , surplus
items & Obsolete items :-
The items should be evaluated considering their technically realizable sale
value for the purpose of sale the book value should be considered nil in the books of
accounts with the approval of competent authority.
Non moving items :-
The non moving items of stores and spares should be evaluated based on
estimated realizable value as under.
i) Items not moved for less than five years at cost
ii) Items not moved for five years and above 60% of he
Original cost
iii) Items not moved for seven years and 55% of the
Above but less than ten years. Original cost.
iv) Items not moved for ten years and above. 50% of the
original cost.
Surplus items :-
The surplus items should be evaluated considering their technically
realizable value. Any sort fall between the book value and as per the technical
valuation may be written off in books of accounts after obtaining approval of the
competent authority. It is further recommended that where the shift life of item has
already been completed, its realizable value may be considered as nil with the
approval of the competent authority.
3) Disposal of obsolete /surplus /non moving
items:-
a) Exchange the list of obsolete /surplus items among IFFCO’s units review and
decide on their possible usage within time frame of one month.
b) Exchange the list of obsolete /surplus among their fertilizer plants having
same machine time frame of two months.
c) Exchange the list of obsolete/ surplus items of captive power plant with the
other power plant.
d) The list of surplus items can be offered to OEM under buy back
arrangements if any.
DATA ENTRY MENU
The very first menu that is data entry is used for the various types
of entries of transactions. In the data entry menu there are several options shown in
above diagram.
DOCUMENT ENTRY: This option is used to enter the data in various
types of documents like SRV, SIV, ISRV, and STV (in), STV (out) etc.
ADJUSTMENT ENTRY: With the help of this option we may easily make
the adjustments in the stock issue voucher (SIV), due to any previous
adjustment.
ADJUSTMENT ISRV: This option of data entry menu has the same
working in issue stock return voucher (ISRV).
PHYSICAL VERIFICATION: In case of verification of stock the people
responsible for stock verification estimates a range of items for verification
and after verify the selected range of items; they punched the quantity
verified or lock the verified quantity till the next verification.
Entry of Surplus: This option is used for adjust the surplus items which
are declared by the plant. The surplus items means, the items which are
exceeds from the records. So in case of this situation the accountants
make an entry @ of 1 Rupee per unit of items.
Data Entry
Document Entry
Adjustment SIV Adjustment ISRV
Physical verification Entry of Surplus
SRVSIV
ISRVSAV
STV (in)STV(out
REPORTS MENU
SUMMARY A/C HEAD WISE: This option creates the summary reports of all the
A/Cs in respect of A/Cs heads like
Inventory spares (Ammonia, Urea etc.)
Loose Tools
Chemicals
General Stores
Construction Materials etc.
Reports
Summary A/c head wiseMonth reports before PSL run
PSL JV
Kardex
Code wise inventory status
Month reports after PSL run
Inventory consumption
MONTHLY REPORTS BEFORE PSL RUN: This option creates the
monthly report of all the documents like – SIV, ISRV, SAV, STV (in), STV (out) etc. so
that the account persons may check whether the documents are correct or not,
because if there is any mistake in any document and PSL run is performed it will
create the wrong final reports.
MONTHLY REPORTS AFTER PSL RUN: The working of this option is
same as the previous option but the difference is that the reports made after the PSL
run are more accurate updated and non volatile in nature.
PSL JV: After processing of PSL run all the documents becomes updated
and all the transactions also gets updated. So that by this option we can see all the
journal voucher of the entries of inventories.
KARDEX: The kardex is the very useful tool for showing the current status
of all the items. Kardex shows the update inventory and also shows the past status of
every past tears. The accountant may see the past status as on any past date.
INVENTORY CONSUMPTION: This option of the report menu shows the
data regarding the consumption of materials according to the date. We can see the
consumption of a particular item. This report helps in forecasting of material
purchasing for the future consumption of the materials.
CODE WISE INVENTORY STATUS: This option creates a report inventory
code wise. We can create report for selected codes.
PROCESSING MENU
Processing is the most important task of this software, because all the reports
which are forwarded to the concerning authorities and are the basis for the further
actions are made only after the processing or the PSL run. PSL processing makes
update all the documents.
PSL PROCESS I: The option process I updates and calculates the values for
all documents and makes available to create the final reports. Once a PSL run is
processed the data can not be changed, So that this task is very sensitive so the
operating person should have the great care and responsibility in processing task.
PUT A/C GROUP IN INVENTORY MASTER: This option also a processing
task when we executes this option it assigns the A/C group to all the inventory / item
codes so that these codes may link to a particular A/C group.
REVERSE STOCK FOR PSL KARDEX MISMATCH: It is very important
processing because it creates a list of all the items which are mismatching in respect
of units / quantity
between the PSL and kardex. If there is any mismatch in PSL and Kardex the report
shows those mismatches on the screen.
REVERSE STOCK FOR PHYSICAL KARDEX MISMATCH: This option
creates a list of mismatches of karedx and physical verification. This processing
Processing
Put A/C group in IMPSL Process I
Reverse stock for PSL kardex mismatch
Reverse stock for physical kardex mismatch
performed once in year, because the physical verification of the inventories is done
once in a year.
CALCULATOR & EXIT MENU
CALCULATOR: The calculator menu has no sub option we can use the
calculator only by clicking on the calculator menu. It helps much in manual calculations
make the surety of correctness.
EXIT: Apart from this the exit menu is simply for quitting the software,
whenever we click over the exit menu, we exits from the software.
MATERIAL MANAGEMENT
1) Material Planning and Programming. As Introduction
“Materials management covers the whole range of functions involved in
converting raw material and ancillary supplies into finished products.”
Areas/ scope of functions of Material Management
According to General Electric Company of U.S.A. -
1) Material Planning and Programming. An Introduction
2) Purchasing.
3) Inventory Control.
(4) Receiving, Issuing, Store Keeping.
(5) Production Control.
(6) Product Handling, Warehousing.
(7)Disposal of obsolete, surplus, scrap items.
Definition –“Material management is defined as the function responsible for
coordination of planning sourcing, purchasing, moving, storing, and controlling in an
optimum manner so as to provide a pre-decided service to the customer at a minimum
cost.”
- P. Gopal Krishnan & M. Sunderasen
In IFFCO AONLA unit there is material department. It consists of
(i) Purchase Department and
(ii) Stores Department.
Purchase Department – It procures raw material/ other materials on
requirement of user department .Through E-procurement process with full-fledged of
material purchase process. It also ensures about in preparation of purchase order,
quality of material and sound communication with vendors.
E-procurement -The system have been implemented at HO/MKCO
production units and zonal offices. E-mails and SMS alerts are automatically send to
the vendors and issue or extension of the tenders, seek status and clarification,
authorize its distributors and update their address on the website. The software
ensures confidentially, integration and authentication of the bids using digital
certification. A strategic tie up has been signed with Microsoft Corporation under their,
“Enterprise Go Program” to migrate the application to latest net technology.
Stores department - Stores department is responsible for keeping
materials and supplies them to its end user. It ensures about:-
Receipts, issues
Warehousing
Inventory control
Maintaining of various stock level like
Maximum level , minimum level, reorder level, and safety stock level
Planning and expedition department prescribes guidelines on maintenance of
stock level.
Store section
MPRChecking of MPR script
Purchase depts.
List of registered vendor
20 Lacs Exceeding 2 Lacs
EnquiryBids 3min
Is Purchases
QCS
Approval of indentor/finance
Tender committee
Purchase Order/ Letter
6 Copies
Stop
Procurement of material
Flowchart of Material Purchase Process
MPR- Material purchase process
QCS- Quotation comparison statement
Scope of Material Management
Materials Planning and Control
Based on the sales forecast and production plans the material planning and
control is done. This involves individual requirements of parts, material budgeting,
forecasting the levels of inventories, scheduling the orders and monitoring the
performance in relation to production and sales.
Purchasing
This includes selection of sources of supply finalization of terms of
purchase, placement of orders follow up, maintenance of smooth relations with
suppliers, approval of payments to suppliers, evaluating and rating suppliers.
Stores and Inventory Control
This includes physical control of materials, preservation of stores,
minimization of obsolesce and damage through timely disposal and efficient handling.,
maintenance of stores records, proper location and stocking. Stores are also
responsible for physical verification of stocks and reconciling then with the book
figures. The inventory levels, ABC analysis, Fixing EOQ, setting safety stock levels
lead time analysis and reporting.
Stores section
In Aonla unit stores department have two sections –
I. RECEIPT SECTION
II. CUSTODY SECTION
Aonla unit has total inventories of about 58 crores currently. It has been
reducing from previous years using effective stock verification, maintenance of stock
levels and inventory control.
Here inventories are in spares and general items, chemical lubricants.
Urea is the main product. The raw material for this ammonia and CO2.
Aonla unit has both ammonia and urea plant for making urea, procuring raw materials
to urea plant . Bagging deptt. is concerned with packing of urea in bags and dispatch
through rail wagons daily on the recommendation of the H.O. or on prescribed
guidelines.
Inventories Spares
Ammonia Mechanical Instrument Electrical
Urea ” ” ”
Offsite 1
Offsite 2
Product handling
Power plant
Spares are used by its concern department.
General items are used by all departments like nut bolts, pipes, electric
wires, chemicals, lubricants, flangs, belts, paints, etc.
IFFCO AONLA unit has near about 50,000 items of inventory. Stores
department maintain stores levels like reorder level, safety lock, maximum minimum
level of just 711 items, these are fast moving items.
Insurance spares:- Insurance spares are capital items/ proprietary items
which are in single quantity. These are expensive like heat converter, boiler, chemical
tank, etc.
Receipts/ Issues/ Warehousing
At IFFCO AONLA all purchased materials receipt at receipt section, issues
from custody section, kept at their location.
I. Receipt section
When goods are bought in the receipt section a CRR (Consignment Receipt
Register) no. made for the above material. CRR No. is being made in the computer
itself. Goods are inspected by the store keeper from the purchase order and challan to
verify the quantity of the goods received. The SRV is prepared. Indentor is asked to
inspect the material and verify the material with quality inspection. Getting verification
from indentor material is being tagged.
ITEM TAG
II. Custody Section
The function of custody section is to maintained the stock received from the
receipt section maintains its recorder level and issue to the required indentor or user of
the items. After receiving the SRV and goods from the receipt section materials are
stored in the racks according to the location and code assigned to each part. Materials
are checked physically before they are kept.
Codification MA - 09 - 033 - 4E
Deptt. Rack Column
P.O. No. ______ CRR No. _______Item Code ________ Centre Code ______Inspection Mark _____________________Signature Indenture _______________
DIFFERENT ISSUE NOTES
In IFFCO 4 types of receive as well as issue voucher are generally
used for the particular issue or receipts of the material such as :
1) SRV (store receipt voucher)
2) SIV (store issue voucher)
3) ISRV (inward store receipt voucher)
4) SAV (store adjustment voucher)
5) STV (store transfer voucher)
6) DCISRV (direct consumer internal store
Receipt voucher)
SRV(STORE RECEIPT VOUCHER )can be of two types:
(a) RS (receipt from supplier voucher):
These vouchers are generally issued by the store whenever the material is
received from the supplier at the store gate.
(b) RD (receipt voucher for direct consumption):
These vouchers are generally issued by the store for the direct consumption
of raw material by the concerned department.
The copy of these SRV will be dispatched to the following department such
as:-
(A) 1 copy to purchase department.
(B) 1 copy to indent department.
(C) 2 copy account department.
(D) 1copy lie with store itself.
STORE ISSUE VOUCHER can be of 5 types such as:
1) ID : These vouchers bare issued by the particular department for general item.
2) IB : These vouchers are issued by the department for the spares.
3) IC : Such type of voucher is generally issued by the contractor for the issue of
requisite material.
4) IE : Such vouchers are issued by the particular department for the stationery
items.
5) IA : These vouchers are generally used by the contractor for the issues of
spare parts.
The copy of these SIV will be dispatched to the following department such as :
(a) One copy to purchase department.
(b) One copy to indenter.
(c) Two copy to account department.
(d) One copy is lie with the store itself.
(e) One additional copy to security.
ISRV ( INTERNAL STORE RECEIPT VOUCHER)
The 100% of the issued material have not been utilized by the particular
department or parties, in this stage the concerned party or department will revert that
the remaining raw material to the store by using such type of issue voucher.
These ISRV can be of five types such as:
1) BD : Such type of ISRV is generally used by the particular department for the
general item.
2) BB : These ISRV are used for the spare return by the particular department.
3) BC : Such type of ISRV is generally used by the contractor for the return of
remaining raw material.
4) BE : These vouchers are used for the stationery items.
5) BA : These are also used by the controller for spares.
The copy of these ISRV will be send to the following department such as:
(a) One copy to store.
(b) Two copy to account department.
(c) One copy lie with indenter itself.
The issue note shall be priced on the weighted average rate basis after
accounting the last receipt of the 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 accounts.
RESEARCH
METHODOLOG
Y
RESEARCH METHODOLOGY
Research represents “a systematic method of exploring actual persons
and groups, focused primarily on their experience within their social worlds,
inclusive of social attitudes and values, the mode of analysis of these experiences
which permit stating proposition in the form. ”Research covers the search for and
retrieval for a specific purpose. Basically research is a search for knowledge with
the help of objective and systematic method of finding solution to a problem. Steps
followed to conduct the study.
FORMULATING RESEARCH PROBLEM: The problem under study viz.
how effective are the measures applied by IFFCO, Aonla to control the inventory is
basically studied through analytical research. Material is important for the efficiency of
the system. It is a matter of great importance for inventory department. Inventory
department of IFFCO, Aonla is responsible for efficient inventory control. Thus the
whole study was conducted under the guidance of officers of this department.
EXTENSIVE LITERATURE SURVEY: Many published studies, books on
material, their effective control were referred for getting a true direction to research
process.
DATA COLLECTION: The study is conducted using Collection of data.
METHOD ADOPTED: Personal interview were conducted where a set of
pre conceived question were asked to the officer of inventory department regarding
material control policies adopted by them. Books of account of Aonla I and Aonla II
were studied thoroughly to gain details about inventory stock, cost of material
consumed, increase and decrease in stock during last year etc.
FINDINGS
FINDINGS
Majority of the farmers are using IFFCO product and rest are using other
including Tata, Narmada &others.
60% of the farmers are waiting for a particular brand of fertilizers
Most of the farmers are selecting the fertilizers on brand basis and second
major criteria to select the fertilizers is availability
90% of the farmers desired for the plastic bag and only 10%for the jute bag
70% of farmers desires 50kg pack & rest 30% prefer 25kg pack.
In a village about 60% farmers meetings,15% Field Day,10% Socioeconomic
&15% Other Promotional Programmes were organized by IFFCO
I found that farmers are satisfied with the IFFCO fertilizers even in unadopted villages.
There are a number of reasons to prefer the plastic bag:
Moisture control
Reused and strong
They are using silos for the storage of finished goods in a case of uncertainty(strike,
machine failure, transportation problem)
IFFCO’s promotional activities are very good
LIMITATION
LIMITATION
In IFFCO, there employees are not having that much time to give us the
information about the topic.
There employees do not want for external interference.
Some employees are not that much qualified according to the job profile.
Problem occurred in material coding.
Inadequate recording of material store
CONCLUSIONSAND
RECOMMENDATION
CONCLUSION & RECOMMENDATION
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.
In most inventories a small proportion of items accounts for a very
substantial usage (in terms of monetary value and annual consumption) and a large
proportion of items accounts for a small usage. ABC analysis based on this empirical
reality advocates in essence a selective approach to inventory control, which calls for
a greater concentration of efforts on inventory items accounting for the bulk of usage
value.
Responsibility for control of inventories is of the top management, though
decisions in this regard might well be based upon the combined judgment of the
production manager, the sales manager and the purchasing manager. This is desired
in view of the financial considerations involved in the problem and also because of
need for coordinating the different kinds of inventories and conflicting viewpoints of
different departments. Decisions relating to inventories should be taken by higher
authority of the organization as well as departments.
There are some points may be given as recommendation or a program
may be constructed for inventory monitoring and controlling, which consists some
following elements:
Active disposal of goods that is surplus, obsolete and unusable.
More effective exercise should be followed of vigilance against imbalance
of raw material and work in progress which tends to limit the utility of
stocks.
To strict adherence to production schedule.
To shortening the production cycle.
To change in design to maximize use of standards parts and components,
which are available off the shelf.
To maintain the special pricing to dispose off unusually slow moving
items.
To make vigorous efforts to expedite completion of unfinished production
jobs to get them in to sellable condition.
BIBLIOGRAPHY
BILBIOGRAPHY
Website
www.iffco.nic.in
Search Engine
www.google.com
Books
IFFCO Company’s Annual Report 2006-07
Guidelines on identification, Obsolete, Surplus items. IFFCO Manual
Students’ Guide to Accounting Standards: Rawat,D.S (2003)
GopalKrishnan, P; Sudershan,M.- An Integrated Approach on Material
Management ( Prentice Hall )
Doler, W. Donald; Lee Jr, Lamer; Burt, N David, Inventory
purchasing& material management system.
Pandey; I.M – Inventory Management (Vikas Publications)
++ Valuation of Inventories AS-2
Indian Accounting Standards and GAPP by Dolphin, D’Souza
(Snow White Publisher)
