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SUMMER TRAINING PROJECT REPORT

ON
“A comprehensive study of INVENTORY MANGEMENT SYSTEM At IFFCO, AONLA”

For partial fulfillment of

MASTER 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)

PREFACE

Roll No. 20

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 Account Manager

to Mr. RAJAN KESHRI IFFCO, AONLA ) for his

( Senior 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 helped in building excellent a strong faculty members who 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.

DatePlaceKR. SINGH CHAUHAN) (KRISHAN

LIST OF CONTENT

S.NO.

TOPICS OF CONTENT
OBJECTIVE OF THE STUDY ORGANIZATION PROFILE AONLA UNIT FINANCE & ACCOUNTS DEPARTMENT INVENTORY MANAGEMENT RESEARCH METHODOLOGY CONCLUSIONS AND RECOMMENDATION BIBLIOGRAPHY

1

2

3

4

5

6 7 8

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 Founded Headquarters Key people Industry Turnover Profit After tax Website

Cooperative New Delhi, India (November 03 1967) New Delhi, INDIA U.S. Awasthi, Managing Director Fertilizer Rs. 32,933.30 Crore (2009) Rs. 360.01 Crore (2009) 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 cooperative 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 Government of India Co-operatives Total Equity Nil 422.51 422.51 % Share Nil 100 100

The Share Capital of the Society was Rs.423.93 crore as on March 31, 2008 and the distribution of shareholding was as under:

Value of shares 1,000 10,000 1,00,000 Total

No of Shareholders 36,813 2520 231 39,564

No. of share held 3,45,884 39,571 35,036 4,20,491

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
 PR 1+ (PR One Plus) rating to IFFCO’s Short Term Loans having tenure upto ‘CARE AA’ (Double A) rating to External Commercial Borrowings and other

one year.  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 Copromoters 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 Kandla unit received the “FAI Award for the year 2004-05” for the best overall Aonla unit received “National Safety Award” as runner-up based on largest Prestigious “National Energy Conservation Award-2005” certificate of merit in the

lowest Disability Injury Index from Gujrat safety Council.  performance of in complex fertilizers category.  accident free area.  fertilizer sector to phulpur unit”.

OPERATION RESULT
TOTAL PRODUCTION FERTILIZER
Production 71.68 72 71 Lakh M Tonne 70 69 68 67 66 2008-09 2007-08 Production Production 68.47

PRODUCTION OF UREA

Lakh M Tonne

40.8 40.6 40.4 40.2 40 39.8 39.6 39.4 39.2 39

40.68

39.63

2008-09

2007-08 PRODUCTION OF UREA

SALES-UREA

60 58 Lakh Tonne 56 54 52 2008-09 SALES-UREA 54.29 2007-08 58.69

PERFORMANCE HIGHLIGHTS Of IFFCO performance during 2008-09.
 Highest Production of Fertilisers  Highest Production of Urea  Production of NPK/DAP/NP  Highest sale of Fertilizers 71.68 Lakh MT
(Previous Best 68.47 Lakh MT in 2007-08)

40.68 Lakh MT
(Previous Best 39.63 Lakh MT in 2007-08)

31.00 Lakh Tonne
(Previous Best 32.26 Lakh Tone in 2007-08)

112.58 Lakh Tonne
(Previous Best 93.24 Lakh Tone in 2007-08)

 Highest sale of Urea  Highest sale of NPK / DAP/NP  Highest Turnover  Profit before Tax  Profit After Tax  Highest Marketing Productivity  Plant Productivity
08)

58.69 Lakh Tone
(Previous Best 54.29 Lakh Tonne in 2007-08)

53.89 Lakh Tone
(Previous Best 38.95 Lakh Tonne in 2007-08)

Rs. 32933 Crore
(Previous Best Rs.12163 Crore in 2007-08)

Rs. 441.95 Crore
(Previous Best Rs. 380.52 Crore in 2007-08)

Rs. 360.01 Crore
(Previous Best Rs. 257.59 Crore in 2007-08)

7397 MT per employee
(Previous Best 6158 MT/employee in 2007-08)

1376 MT/ per employee
(Previous Best 1354 MT /employee in 2007-

 Lowest Energy Consumption - Urea

5.941 Gcal / Tonne
(Previous Best 5.907 Tonne in 2007-08)

AONLA- UNIT

ABOUT AONLA UNIT

Year of Commissioning Investment Year of Expansion

: : : :

1988 Rs 651.6 Cr 1996 Rs 945.7 Cr

Investment

Plant 1. Ammonia 2. Urea

Capacity

Consultant

1520 mt/d *2 1310 mt/d *2

Haldore Topsoe(Denmark) Snamprogetti(Itlay)

3. Product handling Silo1-45,000 mt

plant(silo, packing, transport)

Silo 2-30,000mt

4. Steam & Power 18 mw *2

TEC(Japan)

generation

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
CHAIRMAN

BOARD OF DIRECTORS

MANAGING DIRECTOR

FINANCE DIRECTOR

MARKETING DIRECTOR

EXECUTIVE DIRECTOR (PROJECT)

EXECUTIVE DIRECTOR (GENERAL MANAGER) M)

TRANSPORT ADVISOR

GENERAL MANAGER (KALOL)

GENERAL MANAGER (KANDLA)

GENERAL MANAGER (AONLA)

GENERAL MANAGER (PHULPUR)

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 AONLA – II Ammonia Plant Urea Plant Ammonia Plant Urea Plant May 15, 1988 May 18, 1988 Nov. 16, 1996 Nov. 16, 1996

INVESTMENT
AONLA – I AONLA – II Rs. 651.6 Crore Rs. 954.7 Crore

COMMERCIAL PRODUCTION
AONLA - I AONLA – II July 16, 1988 July 25, 1996

PRODUCT CAPACITY
AMMONIA UREA 891000 Tones per Annum 1452000 Tones per Annum

TECHNOLOGY

AMMONIA PLANT UREA PLANT

Haldor Topsoe, Denmark Snamprogetti, Italy

LOCATION
State State Capital Distance from Lucknow Distance from New Delhi Nearest Airport Railway Station Road Uttar Pradesh Lucknow 280 Km. 260 Km. New Delhi Aonla (10 Km. From the Plant) Plant is In Bareilly–Aonla Bareilly highway. Area under Plant Area under Township 260 Hectares 220 Hectares

ORGANISATION CHART AT AONLA UNIT
Sr. General Manager

General Manager

General Manager

JGM/CM System System

JGM/CM Production

JGM/CM Maint

JGM/CM Technical

JGM/CM Utility

JGM/CM Communication

JGM/CM F &A

Ammonia Plant

Mechanic al

Process

Power

Purchase

F&A

Urea Plant

Electrical

Design & Drawing

Offsite

Store

Product Handling

Instrumental

Library & Document

Fire & Safety & Env.

Civil

Laboratory

Training & Devp. Traffic

General Engg.

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. 2. Managerial finance function Routine finance function Managerial finance functions are so called because they require skilful planning, control and execution of financial activities. Routine finance functions on the other hand, do not require a great managerial ability to carry them out. They are chiefly and are incidental to the effective handling of the material finance functions.

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.

Bill Section

Financial Concurrence Section/ Budget

Books Section

Payroll & Taxation Section

PSL Section

Supply Section

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 Manager Account

Senior Manager (F&A)
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 Operating Profit to Sales (%) Return on Capital Employed (%) Pre-tax Return on Net Worth (%) Current Ratio Debt Equity Ratio

2008-09 6.50 3.12 11.16 2.41 3.23

2007-08 7.80 3.13 10.31 4.21 1.84

TOTAL INCOME

33432.3 35000 30000 25000 Rs. in Crore 20000 15000 10000 5000 0 2008-09 2007-08 TOTAL INCOME 12517.59

PROFIT AFTER TAX

360.01 400 350 300 250 Rs. in Crore 200 150 100 50 0 2008-09 2007-08 PROFIT AFTER TAX 258

CASH PROFIT

900 800 700 Rs. in Crore 600 500 400 300 200 100 0 2004-05 2005-06 2006-07 CASH PROFIT 2007-08 483 620 642 725

838

2008-09

NET WORTH 3959 4000 3800 3600 Rs. in crore 3400 3200 3000 2800 2004-05 2005-06 2006-07 2007-08 2008-09 NET WORTH 3301 3555 3642 3689

Equity Share capital

423.93

2007-08

426.28

2008-09

422.5

423

423.5

424

424.5 Rs. in Crore

425

425.5

426

426.5

Equity Share capital

NET ASSETS EMPLOYED

17,303.77 18,000.00 16,000.00 14,000.00 12,000.00 10,000.00 Rs. in Crore 8,000.00 6,000.00 4,000.00 2,000.00 0.00 2008-09

10,998.49

2007-08 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 incurred in bringing the inventories to their present and other costs 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 nonmoving 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 eprocurement 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.

Raw Materials Stores and Spares Chemicals Catalysts Packing Materials Power, Water Fuel

2008-09 13997.22 108.34 41.38 200.99

2007-08 6,646.44 96.26 38.22 170.43 756.48

and 981.8

6,646.44 96.26 38.22 170.4 22222233345fsdafsdfdscx

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: Purchase section Stores section

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. 2. IFFCO reserve the right to accept or reject any /all bids without FFCO shall have the right to place the order/award the work to one assign any reason. or more vendor/contractor. Bidding can be done in three ways-: I. II. 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. 2. Envelope I Envelope II Earnest Money deposit Base price as per the terms and conditions of ITB 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. 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

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 4th copy to the 5th copy to the 6th copy to the Material Department Store Section Accounts Department 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 2nd copy to the Accounts Department 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 payment1. 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: • • • • • • • • • • • 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 This group consists of Ammonia and other spares.

There are number of items in total under Inventory General Stores i.e.

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.

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. basis. 4. The PSL balance for each category of stores shall be reconciled Inter unit/ division transfer of materials shall be accounted at cost

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 11 12 13 14 15 81 82 83 84 85 89 90 91 92 93 94 B C D E next 1 digit next 2 digit next 2 digit next 3 digit starting code (1st 2 digits) ammonia urea offsite SGPG Product handling project ammonia project urea project offsite project SGPG project product handling project general items lab mechanical workshop township net plant general items stands for type of equipment stands for type of equipment stands for sub-assembly with equipment stands for parts within the subplant description

Assembly F G next 1 digit next 1 digit sands for unique identification 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. The document regarding the material may be sent to the stores, purchase, concerned dep’t. But ultimately they have to be send to stores. documents are: Goods receipt / railway receipt / challan Form 31 Excise duty Toll tax The particulars of the document are noted in the carriers receipt register (CRR) 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. The following

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 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, norms, the same should be recovered from the contractor. For all issue notes relating to works contracts, one copy of the price issue notes in consultation with consuming department, incase the shortage is more than the consumption

may be sent to the work accounts section to enable them to debit the contractor’s account.

 check.

A monthly abstract also be prepared and passed on to works accounts group for

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 average monthly rate applicable to that material. No material shall be transferred to one card to another card without giving proper the prevailing

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 CATEGORY A CATEGORY B

VALUE(Rs. UNIT) Above Rs. 50000/10001 to 50000/-

PER QUANTUM VERIFICATION 100%
70%

OF

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’ To maintain only a minimum possible inventory because holding costs services. 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 stocks. Ordering Level = Minimum level + Consumption during the lag period. OR = Maximum Consumption* Maximum re-order period. indents should be placed for replenishing

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 ii) Items not moved for five years and above at cost 60% of he Original cost iii) Items not moved for seven years and Above but less than ten years. iv) Items not moved for ten years and above. 55% of the Original cost. 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
Data Entry

Document Entry SRV SIV ISRV SAV STV (in) STV(out Adjustment SIV Physical verification Adjustment ISRV

Entry of Surplus

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 ADJUSTMENT ENTRY: With the help of this option we may easily make the ADJUSTMENT ISRV: This option of data entry menu has the same working in PHYSICAL VERIFICATION: In case of verification of stock the people documents like SRV, SIV, ISRV, and STV (in), STV (out) etc.  adjustments in the stock issue voucher (SIV), due to any previous adjustment.  issue stock return voucher (ISRV).  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.

REPORTS MENU

Reports

Summary A/c head wise PSL JV Kardex

Month reports before PSL run Month reports after PSL run Inventory consumption

Code wise inventory status

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.

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
PSL Process I Put A/C group in IM

Reverse stock for PSL kardex mismatch

Reverse stock for physical kardex mismatch

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 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.

Procurement of material
Flowchart of Material Purchase Process

Store section

List of registered vendor
20 Lacs Checking of MPR script Exceeding 2 Lacs

MPR

Purchase depts.
Bids 3min

Enquiry

Approval of indentor/finance
Purchase Order/ Letter Is Purchas es

Tender committee

QCS

6 Copies

Sto p

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 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. Mechanical ” Instrument ” ” Electrical

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

P.O. No. ______ CRR No. _______ Item Code ________ Centre Code ______ Inspection Mark _____________________ Signature Indenture _______________

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

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 2) SIV 3) ISRV 4) SAV 5) STV 6) DCISRV (store receipt voucher) (store issue voucher) (inward store receipt voucher) (store adjustment voucher) (store transfer voucher) (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) (B) (C) (D) 1 copy to purchase department. 1 copy to indent department. 2 copy account department. 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) 2) 3) 4) 5) BD: Such type of ISRV is generally used by the particular department for the BB: These ISRV are used for the spare return by the particular department. BC: Such type of ISRV is generally used by the contractor for the return of BE: These vouchers are used for the stationery items. BA: These are also used by the controller for spares.

general item.

remaining raw material.

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

CONCLUSIONS AND 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 Students’ Guide to Accounting Standards: Rawat,D.S (2003)

Manual

GopalKrishnan, P; Sudershan,M.- An Integrated Approach on

Material Management ( Prentice Hall ) • • • Doler, W. Donald; Lee Jr, Lamer; Burt, N David, Inventory Pandey; I.M – Inventory Management (Vikas Publications) ++ Valuation of Inventories AS-2 purchasing& material management system.

Indian Accounting Standards and GAPP by Dolphin, D’Souza (Snow White Publisher)