Inventory Management in Iffco V

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

channel member’s inventory needs by drawing, the products through the distribution channel. Replenishment shipments are initiated when available warehouse stock level fall below a predetermined minimum or order point. The amount ordered is usually based on some lot- sizing formulation, although, it may be some variable quantity is a function of current stock levels and a predetermined maximum level.

Classical reactive inventory logic is rooted in the following assumption. Firstly, the system is founded on the basis assumption that all customers, market areas and products contribute equally to profits.

Secondly, reactive inventory logic assumes infinite capacity at the source. This assumption implies that products can be manufactured as desired and stored at the production facility until required throughout the supply chain.

Mostly reactive system decision rules assume demand patterns based on standard normal, gamma or Poisson distribution. When the actual demand function does not resemble one of the above functions, the statistical inventories decision rules based on these assumptions will not operate correctly.

 Planning methods: inventories planning methods use a common information base

to coordinate inventory requirements across multiple locations or stages in the supply chain. Planning activities may occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple destinations. Planning may also occur to coordinate inventory requirements across multiple channel partners such as manufactures and retailers.

a) Fair share allocation: Fair share allocation is a simplified inventory management planning methods that provided each facility with an equitable or “fair share” of available inventory from a common source such as a plant

INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

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warehouse. Using fair share allocation, the inventory planner determines the amount of inventory at the plant. b) Distribution requirements planning (DRP): DRP is a more sophisticated planning approach that considers multiple distribution stages and their unique characteristics. DRP is the logical extension of manufacturing requirement technique (MRP), although there is one fundamental difference between the two techniques.

 Adaptive logic: a combined inventory management system may be used to

overcome some of the problems inherent in rising either or a planning method. The factors that might make a reactive system better in one situation may change over time to favor the use of an inventory planning system. Thus, the ideal approach is an adaptive inventory management system that corporate elements of both types of logic and allows different strategies to be used with specific customer or product segments.


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

channel member’s inventory needs by drawing, the products through the distribution channel. Replenishment shipments are initiated when available warehouse stock level fall below a predetermined minimum or order point. The amount ordered is usually based on some lot- sizing formulation, although, it may be some variable quantity is a function of current stock levels and a predetermined maximum level.

Classical reactive inventory logic is rooted in the following assumption. Firstly, the system is founded on the basis assumption that all customers, market areas and products contribute equally to profits.

Secondly, reactive inventory logic assumes infinite capacity at the source. This assumption implies that products can be manufactured as desired and stored at the production facility until required throughout the supply chain.

Mostly reactive system decision rules assume demand patterns based on standard normal, gamma or Poisson distribution. When the actual demand function does not resemble one of the above functions, the statistical inventories decision rules based on these assumptions will not operate correctly.

 Planning methods: inventories planning methods use a common information base

to coordinate inventory requirements across multiple locations or stages in the supply chain. Planning activities may occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple destinations. Planning may also occur to coordinate inventory requirements across multiple channel partners such as manufactures and retailers.

a) Fair share allocation: Fair share allocation is a simplified inventory management planning methods that provided each facility with an equitable or “fair share” of available inventory from a common source such as a plant


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Cost formulae for determining cost of inventories Weighted Average Method


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IFFCO are using weighted average method. Under this method the issue price is calculated by dividing the value of materials in hand by the number of units in hand. Thus it takes into account both quantities and money value for arriving at the issue rate. Whenever a new consignment is received, a new weighted average price is calculated by adding the value of the consignment to the cost of stock in hand. The rate thus, calculated is used to price all issues until a new consignment is received. The method is more scientific as it smoothens the fluctuations in purchase price. Further, inventory is valued at one rate.INVENTORY VALUATION AT IFFCO

Inventories are valued at lower of cost or net realizable value.

a) The cost in respect of various items of inventory is computed as under: •

Raw Materials, Packing Materials, Construction Materials, Loose Tools in Stock, Chemicals & Catalysts in Stock and Stores & Spares at monthly weighted average cost.

•

Stock-in-Process at direct cost and an appropriate portion of overheads.

•

Finished Goods:

- Manufactured Nitrogenous Fertilizers covered by Group Concession Scheme at Annual Cost of Production at Plant after adjustment of subsidy as determined as per the Revised Norms of the Fertilizer Industry Coordination Committee (FICC).

- Manufactured Phosphatic Fertilizers at Annualized Cost of Production at Plant plus freight unto the warehouses after adjustment of subsidy as estimated in accordance with known policy parameters in this regard.

- Imported Nitrogenous Fertilizers at procurement cost plus direct expenses less reimbursement of handling cost as fixed by the Government of India.


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- 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.


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INVENTORIES CONTROL Inventory control is a systematic control and regulation of purchase storage and usage of materials in such a way as to maintain an even flow of production and at the same time avoiding excessive investment in inventories. An efficient material control reduces loses and wastage of material that otherwise pass on notice. Inventory control is an important part of material management. The need and importance of inventories various in direct proportion to idle time cost of men and machinery and the urgency of requirement. If men and machinery and the factory could wait and so could customers, materials would not lie in want for them and no inventories needs to be carried. But it is highly uneconomical to keep men and machinery waiting and requirement for modern life are so urgent that they can’t wait for materials to arrive after the need for them has arisen. Hence, firms must carry inventory.

NEED OF INVENTORIES •

ORGANISATIONAL: inventories are maintained to widen the latitude in planning and scheduling successive operation. Raw material inventories enables a firm to decoupage its purchase and production.

•

PROCESS: inventory provides flexibility in production schedule so that an efficient schedule and high utilization of capacity may be attained. Without work in progress inventory, a bottleneck at any stage in the production process may be render ideal the machine and facility at subsequent stages. In adequate process inventory may result in delay of production and ideal facilities.

•

FINISHED GOODS: inventories enable a firm to decoupage its production programmers and marketing activities so that desirable result may be achieved on both the fronts. If the adequate finished goods are available, the marketing department can meet the needs of the customer promptly, irrespective of the quality and composition of goods flowing out of the production line currently.

Thus, firm may established a programmed inventory monitoring and control consisting of the following elements:


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•

Exercise of vigilance against imbalance of raw materials and work in progress which tends to limit the utility of stocks.

•

Vigorous efforts to expedite completion of unfinished production jobs to get them into salable conditions.

•

Active disposal of good that is surplus, obsolete or unusual.

•

Strict adherence to production schedule

•

Special pricing to disposal of unusually slow moving items.

•

Change in design to maximize the use of standards parts and components, which are available off the shelf.

OBJECTIVES OF INVENTORY CONTROL Scientific control of inventories should serve the following purpose: •

To provide the continuous flow of required materials, part and component efficient and uninterrupted flow of production.

•

To minimize investment in inventories keeping in view of operating requirement.

•

To provide facility for efficient storage of materials so those inventories are protected from loss fire and theft & handling time and cost keep minimum.


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TECHNIQUE OF INVENTORY CONTROL: Reduction of surplus stock is an essential requirement effective inventory control. Various techniques of controlling the inventories are as follows:1. Mini- max plan. 2. The two bin system. 3. Order cycling system. 4. Fixation of various levels. 5. Control ratio.

o

Mini Max Plan: This is the oldest method of inventory control. In this plan, analysis lays down a maximum and minimum for each stock item. Minimum establishes the reorder point and order is placed for quantity of material, which will bring it to the maximum level.

o

The Two Bin System: The basic procedure is that for each item of stock, two piles or bundles of bins are maintain. The first bin stocks that quantity of first, which is sufficient to meet its usage during the period that elapses between receipt of order material and the placing of next door. The second bin is tapped, a requisition for new supply is prepare and given in purchase department.

o

Order cycling system: In this system, quantities in hand of each items or class of stock are received periodically (30/60/90 days). If it is observed that stock level of a given item will not be sufficient till the next schedule. Review keeping in view of its entire probable rate of depletion, an order is placed to replenish its supply.

o

Fixation of various levels:


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Certain stock levels of fixed level are given below: A) Maximum level: It represents minimum quantity above which stock should not be held at any time. Stock above maximum leads to a higher, Inventory cost to the organization. Maximum stock = re-order + reorder quantity (minimum level consumption * minimum reorder period)

B) Minimum level: It represent minimum quantity of stock that should be held at all the time. Stock below minimum level my lead to the interruption in production scheduled. The minimum level can be calculated by the following formulas: minimum level = reorder level-(normal consumption + normal reorder period).

o

Control ratios: Inventory turnover ratio helps management to avoid capital

being locked of unnecessarily. This ratios revels the efficiency of stock keeping. Inventory turnover ratio is given by: cost of material consumed / cost of average stock held during the period.

Where cost of average stock = (cost of opening stock + cost of closing stock)/ 2

Calculation in days:

Days during the period/inventory turnover ratio reveals the number of days for which the stocks are held.


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OBJECT

Inventories have to be properly valued because of the following Reasons: o

Determination of current income.

o

Determination of financial position.

o

Computation of ratios.


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E-COMUNICATION AND CONTROL ON INVENTORY IN IFFCO E- RAIL FACILITY: IFFCO is a regular client of Indian Railways. So, they have given a special facility to IFFCO, by providing a separate website attached with Indian railway sites so that they can easily track the location of their rakes, which have been loaded with Urea’s and fertilizers, travelling from plant location to the respective rake points. From there, the material would transfer to the warehouses for storage. In IFFCO, there are 2 modes of supply of inventories from plant location to the warehouses and respective societies. They are as follows: a) Railways b) Roads

Railways:It is widely used mode of transport, used by IFFCO for the supply of fertilizers and urea. Generally, as soon as the goods are loaded in the rakes, a Dispatch Advice (D.A) is generated by the stock manager of the plant, which contains all the required information related to the materials i.e. quantity, type of fertilizer, rake number, date of dispatch etc.

As, the rake arrives to the regional rake point, the RR is handed over to the authority i.e. field officer of that point and officer got responsible to send the Rake Receipt (RR) to the plant, after proper checking of quantities with DA, through their WAN communication network i.e. E-VIKAS. This whole process is completely computerized. The web site which railway has given to the organization, help them in tracking the rake position on time and it save lots of resources of them.

ROAD:


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Another mode of transport used by IFFCO is road. It is generally used to transfer the material to the nearby areas of the plants. IFFCO use this mode to distribute its finished goods to the warehouses within the range of 100 – 150 kms. This done through trucks along with the dispatch advice and the same procedure is being used.

This mode of supply is not very much profitable for the company because – •

No feasibility

•

Not economical

•

Time taking


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OVERVIEW OF INTERNAL CONTROL RELATING TO INVENTORY Internal control refers to the norms through which a particular activity can be carried out. In IFFCO, the material is purchased in the following norms: Steps: 1. For raw material, the particular department will issue MRP (material purchase requisition) notes, to the purchase department. 2. On the basis of MRP note, the purchase will be issue tender or will intimate to registered parties for the quotation. 3. On the basis of quotation the committee will decide which party is competent for the requisite material. 4. After decision the purchase department will issue purchase order to the competent party. 5. These purchase order will be issued to for the concern partiesa) Suppliers b) Account section c) Purchase account d) Store 6. After purchase and supply of material, the indent department will inspect the material. 7. After inspection, all the material will be issue according to their own norms. 8. After storing , the store department sends SRV (store receipt voucher) notes to the following department – a) 1 copy to the purchase department b) 1 copy to the indent department c) 2 copy to the accounts department d) 1 copy to lies to the store department itself. 9. After pricing the SRV by the billing section of F & A department and after receipt of invoice from the supplier, the accounts section will issue the cheque to the concerned party for the value received.

DIFFERENT VOUCHERS IN IFFCO INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

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In IFFCO, there are 3 types of receipt and issue vouchers, generally used for the particular receipt and issue materials. The lists are as follows:

 Receipt vouchers:

a) SRV (store receipt voucher) b) ISRV (internal store receipt voucher) c) DCSRV (direct consumer store receipt voucher)

 Issue vouchers:

a) SIV (store issue voucher)

 Adjustment vouchers:

a) SAV (stock adjustment voucher) b) STV (stock transfer voucher)


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ROLE OF PURCHASE FUNCTION IN IFFCO The purchase department, in any organization, is at the interface of internal and external environment. This department is responsible for purchase of various machines, raw materials and other items required by the organization. Purchase function from integral part of material management and it play very important function as it through this procedure that the right amount of material required is delivered at the right place and at the right time so that the process of production or manufacturing goes on unhampered. The purchase department of an organization must know following things:  Knowledge of the material.  Source of material – vendors  Reasonable price

The most important things is the indenter must trust the vendors. Purchasing can also be seen as either strategic or transactional. Also the word “direct” and “indirect” have been used to distinguish the two types: strategic (direct) buying involve the establishment of mutually beneficial long term relationship between buyers and sellers. Usually strategic buying involves purchase of material that are crucial to the support of the firm’s distinctive competence. This could include raw material and components normally used for production process. Transactional (indirect) buying involves repetitive purchases from same vendor, probably through a blanket purchase order. These orders could include products and service not listed on the bills of materials but is used indirectly in producing the items.In more specific terms, today’s purchasing departments are responsible for:  Coordination purchase needs with user departments.  Identifying potential suppliers.  Conducting market studies for material purchases  Proposal analysis  Suppliers selection  Issuing purchase orders  Meeting with sales representatives

PURCHASE PROCESS


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 Recognition Needs: The purchase order is made by the purchase department when

it feels necessary and on the request of indenting department.  Requisition to purchase: this is an intimation to purchase department by the

indenter that the needed certain material. He raises request by filling form as material purchase requisition (MRP). In this he furnishes various information:a) Name of the item & its code no. b) Amount required c) Estimated price d) Required delivery date e) Suggested vendors f) Section/ department Code no.

 MRP security: in this step, scrutinizing of the MRP to certified the genuinely of

the need, for this, first approval to given by immediate higher authority of the indenter. Next the MRP is send to the stores, to check whether the material is available or not. If it is available the MRP goes to the purchase deptt. For further action. Here it is scrutinize in three ways: a) Approval scrutiny b) Budget scrutiny c) Technical scrutiny

 Sending or enquiry/invitation to bid:

Proprietary items: these are those items e.g. spares which have to be brought

from particular supplier or vendor. Non proprietary items: these are those for which there is no restriction on

vendor. Enquiry is sent in order to know the prices and other terms and conditions of vendors. Bidding can be done in 3 ways:


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•

Proprietary bidding

•

Limited tender enquiry •

Press tender/open bidding: if the amount of purchase involves

more than 3 lacs and item is non proprietary then press tender is issued in newspapers.

 Receiving Of Offers: after all bids have been submitted the tenders are open

before tender committee to compare the quotations. Quotation comparison statement (QCS) is made and bid with lowest quotation is generally chosen.

 Purchase Order: after selecting the best offer, purchase order is sent to that

vendor with all the terms and conditions specified and details of the materials to be purchased are also given. A bank guarantee of performance is taken from the vendor in advance which is usually 5% of the P.O.A time limit is set for delivery of consignment and in case of delay a penalty is imposed @5% of the P.O per week.

 Receipt of Material: after the consignment reaches the stipulated place, the

payment is done by the organization according to the purchase terms agreed upon the two parties. The material is checked for quality conditions and then sent to the store where the store releases the “Store Receipt Voucher”, from here it is delivered to the vendor.

 Follow Up Done For Every Order: it may be regarding delay in supply changes

in prices, defective or damaged items supplied etc. For every indent a separate file is opened and correspondence goes on.


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FACTORS FOR PURCHASING The importance of purchasing is any firm is largely determined the four factors: •

Availability of materials

•

Absolute dollar volume of purchases

•

% of product cost represented by material

•

Types of material purchased.

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


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PAYMENT AGAINST PURCHASE There are various modes of payment1. Advance payment to suppliers:

Advance payment shall be made to the suppliers only in such cases where it is specifically provide in the contract order. The advance payment to contractors shall be made against submission of bank guarantee in the Performa provided by IFFCO. Advance payment against indemnity bond shall not be release as provided in the purchase procedure. 2. Full Payment / 90% To 95% Payment:

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

Purchase order number



Whether material supplied are as specified in the purchase



Quantity supplied



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

Where 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.


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FULL PAYMENT / BALANCE PAYMENT AFTER RECEIPT OF MATERIALS:

In case the purchase red provides the 100 % payment after receiving of materials and accepted payment is to be released after the MRR is recessed from the stores department. In case the purchase order dispatch documents and the balance payment after receipt of materials, the balance payment may also to be released after the MAR is received and it is confirmed that the material has been accepted after inspection and taken on charge. Before released of the payment, the invoices should be scrutinized as the case of payments released through bank. In addition it should also be verified whether all the items invoiced have been received, inspected and accepted per the MRR.

DELAY IN DELIVERY In case of project purchases, the time and date of the delivery is the contract. In the event of delay in the execution of the order beyond the date of delivery as stipulated in the order, the project authorities may take following actions –

 Accept

delayed delivery at price reduced by a sum equivalent to 0.5 % if the value goods

not delivered for every week of delay or part thereof limited to a maximum of 5% of the contract value.



Cancel the order in part or full and purchase such cancelled materials from elsewhere

on account and at the risk of the suppler without prejudices to his right inspect of goods delivered.


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ROLE OF WAREHOUSING AND DISTRIBUTION IN INVENTORY MANAGEMENT: Without warehousing and distribution, stores and restaurants would be empty of both products and customers. All of us depend on warehousing, distribution, and inventory management to provide us with what we want, when we want it, at a price we can afford. Whether your warehouse’s pallet rack holds shampoo or computer parts, you play a key role in a supply chain that millions of people depend upon to maintain their standard of living. This means warehousing and distribution are worth the time and effort of analyzing the way you manage your inventory. In the chain of events that leads to putting products in the hands of consumers, your warehouse is responsible for receiving, storing, and shipping items. Despite the warehouse’s important role in inventory management, to this day, warehouses are often a misunderstood and underestimated asset. Here are some key areas where your warehousing and distribution methods affect the profitability of many other companies: •

Help businesses avoid lost sales. Since you keep goods on hand, businesses are able to sell those goods and avoid losing valuable customers.

•

Help provide discounts. Bulk inventory often equates to discounts for your company and consumers alike. The larger the order and the inventory, the smaller the price is per item.

•

Keeps production rolling. To manufacture an item, factories need all the pieces in sufficient quantities. Warehouses keep those pieces on hand for factories, avoiding the huge expense of halting production.


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


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NEEDS FOR WAREHOUSING: Warehousing is necessary due the following reasons:

I.

Seasonable production: you know that agricultural commodities are harvested

during certain seasons, but their consumption or use takes place throughout the year. Therefore, there is need for proper storage or warehousing for these commodities, from where they can be supplied as and when required.

II. Seasonal demand: there are certain goods, which are demanded seasonally, like woolen garments in winters or umbrella as in the rainy season. The production of these goods takes places throughout the year to meet the seasonal demand. So there is a need to store these goods in a warehouse to make them available at the time of need.

III. Large scale production: in case of manufactured goods, now a days production takes place to meet the exiting as well as future demand of the products. Manufacturing also produce goods in huge quality to enjoy the benefited of large scale production, which is more economical. So the finished products, which are produced on a large scale, need to be stored properly till they are clearly by scales.

IV. Quick supply: both industrial as well as agricultural goods are produced at some specified places but consumed throughout the country. Therefore, it is essential to stock goods are made available to the consumers at the time of their need.

V. Continuous production: continuous production of goods in factories requires adequate supply of raw materials. So there is a need to keep sufficient quantity of stock of raw material in the warehouse to ensure continuous production.


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VI. Price stabilization: to maintain a reasonable level of the price of the goods in the market there is a need to keep sufficient stock in the warehouses. Scarcity in supply of goods may increase their price in the markets. Again, excess production and supply may be also leads to fall in prices of the product. By maintaining a balance of supply of goods, warehousing leads to price stabilization.


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FUNCTIONS OF WARHOUSES:

WAREHOUSES provide protection to goods against heat, wind storm, moisture etc. and also cuts down losses due to spoilage, wastage etc. This is the basic functions of every warehouse. In addition to this, warehouses now a day also perform a variety of other functions.





Storage of goods

Protection of goods



Risk bearing



Financing



Processing



Grading and branding



Transportation

ADVANTAGES OF WAREHOUSING:


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WAREHOUSING offers many advantages to the business community. Whether it is industry or trade, it provides a number of benefits which are listed below:

•

Protection and preservation of goods .

•

Regular flow of goods

•

Continuity in production

•

Convenient location-

•

Easy handling-

•

Useful for small businessmen

•

Creation of employment

VENDOR MANAGED INVENTORY In its simplest form, Vendor Managed Inventory is the process where the vendor assumes the task of generating purchase orders to replenish a customer’s inventory. VMI is a term that is used to describe many types of supply chain initiatives. VMI means of optimizing supply chain performance in the manufacturer is responsible for maintaining the distributors’ inventory data and is responsible for generating purchase orders. VMI is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the suppliers takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer’s consumption location (us ually at the store). A third party logistics provider is involved who makes sure that the buyers have the required level of inventory by adjusting the demand and supply gaps.  Under The Typical Business Model: when a distr ibutor needs product, they place

an order against a manufacturer. The distributor is in total control of the timing and size of the order being placed. The distributor maintains an inventory plan.


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 Vendor Managed Inventory Model: The manufacturer receives electronic data

that tells about the distributors sales and stock levels. The manufacturer can view every item that the distributor carries as well as true point of sales data. The manufacturer is responsible for creating and maintaining the inventories plan. Under VMI, the manufacturer generates the order, not the distributor.


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Advantages of VMI:•

Higher service degree

•

Higher responsibility & more liberty of the suppliers when disposing the supplies.

•

More economical lot sizes

•

Small stocks with the dealers

VMI reduces stock outs and reduces inventory in the supply chain. Some features are: •

Shortening of the supply chain.

•

Centralized forecasting

•

Frequently communication of inventory, stock out and planned promotions.

•

•

No manufacturing promotions Trucks are fulfilled in a priority order.

VMI implementation challenges :

VMI can be made to work, but the problem is not just one of logistics. VMI often encounters resistance from the sales force and the distributors. At issue are roles and skills, trust and power shifts. Some of the sales force concerns are: •

Loss of control

•

Effects on compensation – incentives, bonuses may be depends on how much is sold, but sales force has less influence under VMI.

•

Possible loss of jobs

•

Skepticism that it will function well – technical problems.

Concern that reduced inventory will result in less shelf space and therefore loss of market share. This concern can be addressing, by filling the self space with other stock keeping units from the same vendor.


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Operational cost of purchase department from 2008-09 Sr. no.

Name of the location

Phulpur

1.

Wages of officials per annum

03-04

04-05

06-07

07-08

08-09

A

Total no. of employees

22

22

22

26

25

B

Wages of officials per annum CM (MAT)

380231 402882 435008 469035 505734 Middle level officer 2330502 2463453 2347417 3414768 4739228 Workers level 1884399 1979625 1900161 1994622 1725412 employees 2.

Value of machines (16.21% dep. Per year)

A B

PCs Network printer

3. A B C D E

Misc. expenditure

384596 213925

488247 209748

Stationary 109852 94096 Postal cover Fax charges 80639 91059 Telephone charge Books/periodical/ 4800 4800 newspaper Total 5388944 5733910 5384659 expendit ure of purchase 4. Total no. of orders processed per year

1296

409102 175747

533409 275960

446943 231227

73535 38889

86050 32289

4800

4800

154617 34306 38697 34306 4800

6810933

1421

1672

7880964

1383

1324

Internal Lead Time

Sr.no.

Types of order

1

Up to Rs

No. of days 242

Total value of orders (in lacs)

Average lead time in days

12.93

69


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15000

2 3 4

Rs 15000 to 1 lacs Rs 1 lacs - Rs 10 lacs

413

193.91

81

481

1639.74

78

Above Rs 10 lacs

160

9504.56

54

OVERALL AVERAGE

7 0 D A Y S


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SUPPLIERS EVALUATION CRITERIA SHOULD BE USED

Q: 1 HOW TO EVALUATE SUPPLIERS?

Ans: We can evaluate suppliers on the basis of:•

Prices

•

Quality

•

Services

•

Delivery

Q: 2 How to measure the performance of the suppliers? Ans: Though the little change in their DFD i.e. “data floe diagram” are:•

Purchasing Management with SAP Business One.

Q: 3 Why to use “SAP BUSINESS ONE”?

Ans: the Material management system which IFFCO using is in house built and it is not as professional and reliable as SAP BUSINESS ONE, that’s why employees there more rely on paper work rather than using the software. SUPPLY BASE REDUCTIONS

Q: Why supply base reduction is necessary in IFFCO? Ans: IN IFFCO, the numbers of supplier are as follows: Sr. no.

Name of Location

Phulpur

1.

Total no. of vendors

3161

A.

Domestic vendors

2921

B.

Foreign vendors

240

Since there are large number of suppliers in IFFCO, so they are not properly managed and the result is increment in lead time and there is a gap in supply chain. They should review the performance of suppliers every year and reduce accordingly. Q: 4 what methods can they use to reduce supply base? Ans: they can be:•

Twenty/ eighty rule

•

“Improve or Else” approach


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•

Triage approach

CAN GO FOR ANNUAL RATE CONTRACTS

Q: What is the benefit for annual rate contracts? Ans: annual Rate Contracts can help in the establishment of mutually beneficial long term relationships between buyers and suppliers. So, purchasing departments determine what to buy, where to buy it, how much to pay, and ensure its availability by managing the contract and maintaining strong relationships with suppliers. It helps:•

In reducing lead time

•

In reducing inventory levels, no need to block money in inventory.

•

One time bidding.


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COMPARATIVE ANALYSIS OF INVENTORY AVAILABLITY IN IFFCO UREA

2008-09 (LACSMT)

2009-10 (LACS MT)

JANUARY FEBURARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

0.25 0.25 0.24 0.25 0.26 0.26 0.25 0.26 0.20 0.23 0.24 0.28

0.45 0.38 0.35 0.39 0.37 0.41 0.42 0.39 0.40 0.39 0.43 0.44

ANALYSIS:According to this analysis, IFFCO has increased its production and sales capacity. • Though they have enough closing stock of materials in their warehouses as compare to 2008-09. The sales of the urea is very much high in September and October month, though • they have enough material in hand to supply.


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ANALYSIS:This analysis shows that the inventory in the hand of IFFCO was very much •

constant in volume. •

In the month of December, company was having 10% of the total product as a stock; this shows the decrease in the sales of the urea in the market.


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NPK/DAP

2008-09

JANUARY 0.95 0.91 FEBURARY MARCH 0.92 APRIL 0.88 MAY 0.82 JUNE 0.93 JULY 0.87 AUGUST 0.95 0.83 SEPTEMBER OCTOBER 0.90 NOVEMBER 0.91 0.94 DECEMBER CLOSING STOCK (MONTHLY)

2009-10 0.55 0.58 0.57 0.56 0.57 0.56 0.57 0.56 0.50 0.45 0.56 0.50

ANALYSIS:This analysis shows that the production of nap/dap is much higher than 2009-10. • •

There is a stable control over storage of finished unsold product .


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ANALYSIS:In the month of September and October , the sale of the NPK/DAP was on peak. So • the demand of the product goes high and the volume of available resource had goes down. Only 7% of the NPK was retained with the hand of company . •


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SWOT ANALYSIS STRENGTH: •

Largest producer of fertilizers in the country.

•

Five strategically located plants with cutting edge production technologies.

•

Most plants achieve capacity utilization in excess of 100%.

•

A large number of co-operative societies are associated with IFFCO (38,155 at present).

•

Vast marketing and distribution network due to the high number of co-operative associates with IFFCO.

•

Their service network and feedback network is also pervasive in INDIAN RURAL AREAS.

•

•

Highly diverse and strategic portfolio of external investments. No external trade union exercises any power within IFFCO.

WEAKNESS: •

IFFCO has a bureaucratic organizational structure and therefore, is obsessed with working within set a framework defined by rigid rules and regulations. This is often discourages innovation and may also cause sub unit conflicts, in some cases, blind adherence to rules and regulations may limit the perspective of a manager and result in functional unit goals overriding organizational goals.

•

The organizational setup is very rigid and not very efficient in handling sudden changes in business environment.

•

There is excessive sub divisions in some departments and this results in inefficiency.


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OPPURTUNITES: IFFCO has embarked upon a growth plan titled “vision 2010”to achieve annual turnover of Rs. 15000 crores (USD 3400 million) by the year 2010. •

Installation of Ammonia/Urea plants and also acquisition of fertilizer units.

•

Generation of power.

•

Production and marketing of micro nutrients, seeds, bio fertilizers, pesticide etc.

•

Value addition to Agri-Products and Marketing.

•

Banking and Financial Services.

•

Information Technology and IT enable Services.

•

Establishments of Retail Chain in Urban and Semi- Urban locations.

THREATS: •

Competition from KRIBHCO i.e. Krishak Bharti co-operative another government under taking which also produce fertilizer and is very similar to IFFCO in nature.

•

Aggressive competition from private companies which are now entering the fertilizer sector.

•

The government of India has a major influence on the functioning of IFFCO. It is the government which decides “what to produce?”, “how much to produce?” and “where to sell?”. This factor often becomes IFFCO’s major weakness as it sometimes has to functions undue political pressure and takes steps which are non profitable.

•

Government policies on import of fertilizers from foreign nations and decrease in subsidies.

•


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SUGGESTIONS:

•

The organization should establish a national level committee which can familiarize the government with the ground realities in the Fertilizer sector and also advise the government in formation of Policies regarding distribution of fertilizers, import of fertilizers and subsidies.

•

There should an Entrepreneurship Development Cell at all plants which should encourage innovation amongst employees. This would infuse some of the positives of an organic design in to the organizational environment. This cell should lay new business ideas and innovations in front of the top levels of management.

•

Unnecessary sub-divisions in departments should be eliminated to promote efficiency. In the Personnel & Administration department one sub-division can handle both Legal Matters and Contract Laws.

•

The Inspections & Plant Health Department can be dissolved. The Maintenance Department can have an additional sub-division for Inspections & Plant Health. This will streamline the organizational structure and also increase the efficiency of overall maintenance.

•

The Co-operation should not be rigid in its approach and should be ready to face sudden variations in business environments. Managers should not limit themselves to following regulations blindly but should proactively analyze situations.


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Inventory management is one of the important key activities of business logistics. Because of its role in business organizations, inventory is one of the most important instruments of logistics planning and control. Inventory on work in process is linked to the production process, physical inventory on stock or in buffer storage is unnecessary from the standpoint of added value and is considered as waste of time and money. It might seem axiomatic that inventory control is efficient as long as inventory level is going down. But the fact is that, if inventories are minimized without adequate operations, inventories have been mismanaged rather than controlled efficiently. Thus, the basic objectives of inventory management appear to be conflicting in nature. Inventories should increase or decrease in amount or time as related to sales requirements and production schedules. IFFCO is in the business of fertilizer manufacturing and in this sector a huge investment in plant and machinery is required. Therefore IFFCO should efficiently use various inventory management tools to control the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ, Min-Level, Max-Level system of verification of inventory etc.


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Inventory Management in Iffco V

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