INVENTORY MANAGEMENT

Indian Farmers Fertilizer Cooperative Limited

 OBJECTIVES

To analyze the investment of funds in inventory.

To study the inventory policy of the company.
To know the procedure for the receiving of material.
To study the applicability of Accounting standard-2
“Valuation of Inventories”.
 Company’s Overview

IFFCO is globally acclaimed cooperative in fertilizer

production.
IFFCO came into being on 3/11/1967 .
IFFCO commissioned Kalol and Kandla plants in
Gujarat in early 1975.
 PLANTS OF AONLA UNIT

 Ammonia Plant
 Urea plant
 Product Handling Plant
 Steam and Power Generation Plant
Performance Highlights for the year 2008-
09.

Highest Production of Fertilizers 71.68

Lakh MT.
Highest Production of Urea 40.68
Lakh MT.
Production of NPK/DAP/NP 31.00
Lakh MT
Highest turnover Rs.
32,933 Crore
 PROJECT WORK

“INVENTORY MANAGEMENT”
 Inventory Management

The application of managerial function on the basis

of management principles in the field of inventory is
termed as inventory management. Managerial
functions are performed with respect to inventory; it
may be called inventory management.
 Efficient system of inventory management
will determine

 What to purchase
 How much to purchase
 From where to purchase
 Where to store, etc.
 What are inventories?

Inventories are assets:-

• Hold for sale in the ordinary course of business.
• In the process of production for such sale.
• In the form of materials or supplies to be
consumed in the production process or in
rendering of services
 The term ‘inventory’ includes:

Inventory of Raw Materials

Inventory of Stores and Spare Parts
Inventory of W.I.P.
Inventory of Finished Goods
Three motives for holding inventories

To facilitate smooth production and sales operation

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

To take advantage of price fluctuation (speculative

motive)
 Need for inventory management

Production management:
large inventory of raw materials and of such a good
quality
Marketing management:
aims at satisfying ever increasing demands for
improved customers’ service
Financial management:
effort towards to keep investments in different types of
inventory at a minimum possible level .
 How are inventories valued under AS-2?

Inventories are valued at the lower cost and net

realizable value. The cost of inventories should
comprise all costs of purchase, costs of conversion
and other costs incurred in bringing the inventories
to their present location
 Cost formulae for determining cost of
inventories

Specific identification method

FIFO (First in first out)
Weighted Average Method
Standard costing method
 Material coding and its advantages

Lengthy descriptions are replaced by a simple code.

It economizes space in forms and reduces clerical
work.
Ease in identification of stores.
It is comprehensive.
It facilitates, mechanized accounting.
Secrecy of description can be maintained.
Codification MA - 09 - 033 - 4E
Deptt. Rack Column
 Verification of Inventories

Raw material & Packing materials

Stores, Chemicals & Spare parts
Finished products
 Verification of Inventories

Classification Value %to be

verified
(Rs per unit) during the
year
A Above Rs 50,000 100%

B Rs 10,000- 50,000 75%

C Below Rs 10,000 25%
 INVENTORY CONTROL

Inventory control is concerned with minimizing the

total cost of inventory
The three main factors:
The cost of holding the stock.
The cost of placing an order.
The cost of shortage .
OBJECTIVES OF INVENTORY CONTROL

 To minimize investment in inventories keeping in view

operating requirements.
 To keep surplus and absolute items to minimum.
 To protect the inventory against deterioration and
unauthorized use.
TECHNIQUES OF INVENTORY CONTROL:
USED AT IFFCO

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

Obsolete items :Book value should be considered

nil in the books of accounts .
Non moving items :
i) Items not moved for less than five years :at cost.

ii) Items not moved for five years and above :

20% of the original cost.
Valuation of obsolete items, non moving ,
surplus items

iii) Items not moved for seven years and above but
less than ten years: 15% of the Original cost.
iv) Items not moved for ten years and above:
10% of the original cost.

Surplus items:The surplus items should be

evaluated considering their technically realizable
value.
 ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEMS

Verified in A Class B Class C Class Unclassified Total

the year

General Spare General Spare General Spare General Spare General Spare

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

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

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

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

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

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

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

Total 134 389 367 897 5703 9055 139 1115 6343 11456
 Inventory Turnover

This ratio indicates the number of times the inventory

is rotated during the relevant accounting period.
Inventory Turnover ratio- cost of sales
Inventory
20
18
16
14
12
10 Inventory
8 turnover Ratio
6
4
2
0
2008-09 2007-08
 Interpretation

It is revealed from above table that the stock turnover has

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

Const. Material-Timber

construction materials-steel

Chemicals -others
Inventory

Resins in stock

Catalysts

Loose tools

Spares

general stores

1 10 100 1000 1000 1E+0 1E+0 1E+0 1E+0 1E+0

0 Rs. 5 6 7 8 9

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

 CONCLUSION

It might seem axiomatic that inventory control is efficient

as long as inventory level is going down. But the fact is
that, if inventories are minimized without adequate
operations, inventories have been mismanaged rather
than controlled efficiently. Thus, the basic objectives of
inventory management appear to be conflicting in
nature. Inventories should increase or decrease in
amount or time as related to sales requirements and
production schedules.
 CONCLUSION

IFFCO is in the business of fertilizer manufacturing

and in this sector a huge investment in plant and
machinery is required.
Therefore IFFCO should efficiently use various
inventory management tools to control the stock
levels like ABC analysis, monitoring of stock levels
i.e. ROL, EOQ, Min-Level, Max-Level system of
verification of inventory etc.
 THANK YOU

PRESENTED BY:
ABHISHEK PRATAP
087601