INVENTORY MANAGEMENT

Indian Farmers Fertilizer Cooperative Limited

OBJECTIVES

To analyze the investment of funds in inventory.

To study the inventory policy of the company.To know the procedure for the receiving of

material.To study the applicability of Accounting

standard-2 “Valuation of Inventories”.

Company’s Overview

IFFCO is globally acclaimed cooperative in fertilizer production.

IFFCO came into being on 3/11/1967 .IFFCO commissioned Kalol and Kandla plants

in Gujarat in early 1975.

PLANTS OF AONLA UNIT

Ammonia Plant Urea plant Product Handling Plant Steam and Power Generation Plant

Performance Highlights for the year 2008-09.

Highest Production of Fertilizers 71.68 Lakh MT.

Highest Production of Urea 40.68 Lakh MT.

Production of NPK/DAP/NP 31.00 Lakh MT

Highest turnover Rs. 32,933 Crore

PROJECT WORK

“INVENTORY MANAGEMENT”

Inventory Management

The application of managerial function on the basis of management principles in the field of inventory is termed as inventory management. Managerial functions are performed with respect to inventory; it may be called inventory management.

Efficient system of inventory management will determine

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

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

The term ‘inventory’ includes:

Inventory of Raw Materials Inventory of Stores and Spare Parts Inventory of W.I.P.Inventory of Finished Goods

Three motives for holding inventories

To facilitate smooth production and sales operation (transaction motive).

To guar time (precautionary motive) against the risk of unpredictable changes in usage rate and delivery .

To take advantage of price fluctuation (speculative motive)

Need for inventory management

Production management:large inventory of raw materials and of such a good quality Marketing management:aims at satisfying ever increasing demands for improved customers’ service Financial management:effort towards to keep investments in different types of inventory at a minimum possible level .

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

Cost formulae for determining cost of inventories

Specific identification method FIFO (First in first out) Weighted Average Method Standard costing method

Material coding and its advantages

Lengthy descriptions are replaced by a simple code.

It economizes space in forms and reduces clerical work.

Ease in identification of stores.It is comprehensive.It facilitates, mechanized accounting.Secrecy of description can be maintained. Codification MA - 09 - 033 - 4E Deptt. Rack

Column

Verification of Inventories

Raw material & Packing materialsStores, Chemicals & Spare partsFinished products

Verification of Inventories

Classification Value %to be verified

(Rs per unit) during the year

A Above Rs 50,000 100%

B Rs 10,000- 50,000

75% C Below Rs 10,000

25%

INVENTORY CONTROL

Inventory control is concerned with minimizing the total cost of inventoryThe three main factors:The cost of holding the stock. The cost of placing an order.The cost of shortage .

OBJECTIVES OF INVENTORY CONTROL

To minimize investment in inventories keeping in view operating requirements.

To keep surplus and absolute items to minimum. To protect the inventory against deterioration and

unauthorized use.

TECHNIQUES OF INVENTORY CONTROL: USED AT IFFCO

Min-Max Plan.Order cycling system.Fixation of various levels.The ABC Analysis.Review of slow and non moving items.

Valuation of obsolete items, non moving , surplus items

Obsolete items :Book value should be considered nil in the books of accounts .

Non moving items :i) Items not moved for less than five years :at cost.

ii) Items not moved for five years and above : 20% of the original cost.

Valuation of obsolete items, non moving , surplus items

iii) Items not moved for seven years and above but less than ten years: 15% of the Original cost.

iv) Items not moved for ten years and above: 10% of the original cost.

Surplus items:The surplus items should be evaluated considering their technically realizable value.

Verified in

the year

A Class B Class C Class Unclassified Total

General Spare General Spare General Spare General Spare General Spare

2001-02 0 0 110 271 203 393 0 0 313 664

2002-03 0 0 0 0 2 11 0 0 2 11

2004-05 0 0 0 0 2713 5353 0 0 2713 5353

2005-06 0 1 0 0 1185 311 0 0 1185 811

2006-07 0 0 0 0 13 4 0 0 13 4

2007-08 134 389 257 626 1428 2204 0 0 1819 3279

2008-09 0 0 0 0 159 219 139 1115 298 1334

Total 134 389 367 897 5703 9055 139 1115 6343 11456

ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEMS

Inventory Turnover

This ratio indicates the number of times the inventory is rotated during the relevant accounting period.Inventory Turnover ratio- cost of sales Inventory

Interpretation

It is revealed from above table that the stock turnover has been increased to 19.04 times in the year 2008-09 as compared to 5.87times in the year 2007-08. It shows better control over inventory and efficiency in sales. Since IFFCO is in the business of fertilizer manufacturing and in this sector a huge investment in plant and machinery is required.

inventory g raph

1 10 100 1000 10000

1E + 05

1E + 06

1E + 07

1E + 08

1E + 09

general s tores

S pares

L oos e tools

C atalys ts

R es ins in s toc k

C hemic als -others

c ons truc tion materials -s teel

C ons t. Material-Timber

Inve

ntor

y

R s.

inventory 2004-05 2005-06 2006-07 2007-08 2008-09 L inear (2006-07)

CONCLUSION

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.

CONCLUSION

IFFCO is in the business of fertilizer manufacturing and in this sector a huge investment in plant and machinery is required.

Therefore IFFCO should efficiently use various inventory management tools to control the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ, Min-Level, Max-Level system of verification of inventory etc.

PRESENTED BY: ABHISHEK PRATAP

087601

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