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.docx   INVENTORY MANAGEMENT IN IFFCO v.docx (Size: 930.32 KB / Downloads: 167)

PGDM (2009-11)


In every organization, management is that part of the organization, which is concern with planning, organization, directing and controlling of various marketing activities to attain the business objectives. It is the science and art of preparing plans and organize, then as well as direct the human being.
As a integral part of the curriculum, all the PGDM students are required to undergo a practical training in some industry. The main objective of this training is to supplement student’s theoretical knowledge with exposure to practical operation of an organization. This provides the student with better understanding of all functional areas of management and skills applied in those functional areas.
In pursuance of the said requirement, I had my summer training at “INDIAN FARMERS FERTILIZERS COOPERATIVE LTD”, one of the biggest producers of chemical fertilizers in Asia.
The topic assigned to me for my project and implimentation was “Inventory Management”. In IFFCO, I had a contrast of both happiness and anxiety and had undergo difficulties also but with the immense assistance proper guidance and enough encouragement from IFFCO officials and staff, the work went of smoothly and systematically.

During mid- sixties the co-operative sector in India was responsible for distribution of 70 per cent 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 supplies. To overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to specifically cater to the requirements of farmers. It was an unique venture in which the farmers of the country through their own cooperative society created this new institution to safeguard their interests. The numbers of co-operative societies associated with IFFCO have risen from 57 in 1967 to 38, 155 at present.

Indian Farmers Fertilizers Co-operative Limited (IFFCO) was registered on November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative Societies act 1984 & 2002, the Society is deemed to be registered as a Multistate Cooperative Society. The Society is primarily engaged in production and distribution of fertilizers. The byelaw of the Society provide a broad frame work for the activities of IFFCO as a Cooperative Society.

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 unit at Aonla was commissioned in 1988.
In 1993, IFFCO had drawn up a major expansion program of all the four plants under overall aegis of IFFCO VISION2000. The expansion project and implimentations at Aonla, Kalol, Phulpur and Kandla have been completed on schedule. Thus all the project and implimentations 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 project and implimentations and acquisition, IFFCO's annual capacity has been increased to 3.69 million tonnes of Urea and NPK/DAP equivalent to 1.71 million tonnes of P2O5.

The distribution of IFFCO's fertilizer is undertaken through over 38155 co-operative societies. The entire activities of Distribution sales and promotion are co-ordinate by Marketing Central Office (MKCO) at New Delhi assisted by the marketing offices in the field. In addition, essential agro-inputs for crop production are made available to the farmers through a chain of 158 farmers service centre (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 belong to this category. An ambitious project and implimentation '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 agriculture extension activities for their benefit every year.

Management inventories constitute the most significant part of all the companies. On an average, inventories are 60% current assets in India. Because of large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is therefore, absolutely imperative to manage inventories effectively in order to avoid unnecessary investment. It is possible for a company to reduce its level of inventories to a considerable level without any adverse effect on production and sales, by using simple inventories planning and control techniques. It was the period of mid 60’s the co-operative sectors in India, was holding the responsibility for distribution of 70% of fertilizers consumed in the countries. Te sector had adequate infrastructure to distribute fertilizers. But no production facilities of its own and hence was dependent on public private sector for supply. To overcome this lacuna and bridge the demand and supply gap in country, a new co-operative society was conceived to specifically cater the requirement of the farmers. The number of co-operative society attached with IFFCO has risen from 57 in 1967 to 37333 in March 2005.
IFFCO “Indian Farmers Fertilizers Co-operative Limited” was established on 3rd Nov.’67 as a multiunit co-operative society engaged in production and distribution of fertilizers. The bylaws society provides a broad framework from act of IFFCO as a co-operative society. The emphasis is on production and distribution of fertilizers. In order to fulfill these objectives IFFCO has set up KARLOL plant for manufacture of nitrogenous fertilizers and KANDLA for manufacture of phosphates fertilizers. IFFCO has emerged as ASIA’s largest fertilizers co-operative with its four modern sophisticated plant at KALOL and KANDLA in Gujarat and PHULPUR and AONLA in U.P. IFFCO is country’s largest producers of nitrogenous and complex fertilizers with the total production capacity of 5.88 million tons and contributes aprox. 20% of the fertilizers produced in the country.
The distribution of IFFCO fertilizers is undertaken through over 37337 co-operative societies. The entire activities of distribution, sales are assisted by marketing offices in the fields. In addition, essential agriculture inputs for crop production are made available to the farmers through a chair of 167 service canter also. The total paid up share capital as on the date stands at over Rs 456.87crores.

What Does Inventory Mean?

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.
Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

Types of inventory

• Inventory of raw materials
• Inventory of stores and spare parts
• Inventory of work-in-progress
• Inventory of finished goods

Inventory Management
Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment.
Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs.

The Reasons For Keeping Stock:
There are three basic reasons for keeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time".
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.

Purpose of Inventory Management:
Inventory management must be designed to meet the dictates of market place and support the company’s Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control.

Inventory Management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers. Inventory Management does not make decisions or manage operations; they provide the information to managers who make more accurate and timely decisions to manage their operations.
It is strategic in the sense that top management sets goals. These include deployment strategies (Push versus Pull), control policies, the determination of the optimal levels of order quantities and reorder points and setting safety stock levels. These levels are critical, since they are primary determinants of customer service levels.

VMI reduces stock-outs and optimize inventory in supply chain . Some features of VMI include:
• Shortening of Supply Chain
• Centralized Forecasting
• Frequent communication of inventory, stock-outs and planned promotions
• Trucks are filled in a prioritized order.
Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed.

Benefits of Inventory Management:

• Help reduce purchasing and inventory costs. Connect inventory control, purchasing, and sales order processing with demand planning and help reduce costs, improve cash flow, and help ensure that you have the right stock available when you need it.
• Gain visibility into inventory processes. Effectively balance availability with demand and track items and their possible expiration dates throughout the supply chain to help minimize on-hand inventory, optimize replenishment, and increase warehouse efficiency.
• Improve customer satisfaction. Make more accurate order promises and intelligent last-minute exceptions with access to up-to-date inventory information. Respond quickly and knowledgably to customer queries for improved customer service.
• Reduce time to market. With integrated order, inventory, and distribution processes, as well as item tracking capabilities, your business can reduce manual data entry and get your goods to market fast.

Symptoms Of Poor Inventory Management:

A certain numbers of symptoms allow discovering poor inventory management. They are as follows:
• Increasing number of back orders.
• High customer turnover rates.
• Increasing numbers of cancelled orders.
• Large quantities of obsolete items.
• Periodic lack of sufficient space.

Inventory Management Improvement:
It has been identified that there are six activities which may help in improvement of inventory management. These activities will be explained in order to provide some background information on improvement of inventory management.
• Top management commitment. Because lower inventories have impact on many different parts of logistic systems, senior leadership must ensure that all of those activities are working together to meet customer needs without the luxury of excess stock.
• ABC analysis of all inventory items. Management must first understand that the goods in inventory are the most important in terms of their contribution to the objectives of the organization.
• Improved performance of other logistics activities. Manager should ensure that the rest of the logistic system is functioning efficiently. It may be those inventories policies have evolve as a way to obscure other problems that should be dealt with directly. By reviewing transportation, order processing and warehousing functions, for example, management may find order- cycle variability can be reduced by improving those activities that would lower the need for inventory.
• Improved demand forecasting. Demand forecasting is also a way of reducing variability, this time in terms of expected versus actual sales. Better forecasting techniques can be utilized to more accurately predict actual sales.
• Inventory management software. Software is currently available for inventory management situation and allows managers to tracks sales by items, costs length of time in inventory and other vector as well.

Inventory Management Policies:
 Inventory control is the managerial procedure for implementing inventory policies. The accountability aspect of control measure units on hand at a specific location and tracks additions and deletions. Accountability and tracking can be performed a manual or computerized basis.

Inventory control defines how often inventory levels are reviewed to determined when and how much to order. It is performed on either a perpetual or a period basis. To the most effective, the inventory control system must also provide information in timely manner to allow you to make decisions while problems can still be corrected.

Two models are usually used to control inventories:

• Perpetual review: a perpetual inventory control process reviews inventory status daily to determine inventory replenishment needs. To utilize perpetual review, accurate tracking of all stock keeping units is necessary. Perpetual review is implemented through a re-order point and other quantity.

• Periodic review: periodic inventory control review, the inventory status of an item at regular time intervals such as weekly or monthly. For periodic review, the basic re-order point must be adjusted to consider the extended intervals between reviews.

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

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

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

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

 Planning methods: inventories planning methods use a common information base to coordinate inventory requirements across multiple locations or stages in the supply chain. Planning activities may occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple destinations. Planning may also occur to coordinate inventory requirements across multiple channel partners such as manufactures and retailers.

a) Fair share allocation: Fair share allocation is a simplified inventory management planning methods that provided each facility with an equitable or “fair share” of available inventory from a common source such as a plant warehouse. Using fair share allocation, the inventory planner determines the amount of inventory at the plant.

b) Distribution requirements planning (DRP): DRP is a more sophisticated planning approach that considers multiple distribution stages and their unique characteristics. DRP is the logical extension of manufacturing requirement technique (MRP), although there is one fundamental difference between the two techniques.

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

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

• ORGANISATIONAL: inventories are maintained to widen the latitude in planning and scheduling successive operation. Raw material inventories enables a firm to decoupage its purchase and production.
• PROCESS: inventory provides flexibility in production schedule so that an efficient schedule and high utilization of capacity may be attained. Without work in progress inventory, a bottleneck at any stage in the production process may be render ideal the machine and facility at subsequent stages. In adequate process inventory may result in delay of production and ideal facilities.

• FINISHED GOODS: inventories enable a firm to decoupage its production programmers and marketing activities so that desirable result may be achieved on both the fronts. If the adequate finished goods are available, the marketing department can meet the needs of the customer promptly, irrespective of the quality and composition of goods flowing out of the production line currently.
Thus, firm may established a programmed inventory monitoring and control consisting of the following elements:
• Exercise of vigilance against imbalance of raw materials and work in progress which tends to limit the utility of stocks.
• Vigorous efforts to expedite completion of unfinished production jobs to get them into salable conditions.
• Active disposal of good that is surplus, obsolete or unusual.
• Strict adherence to production schedule
• Special pricing to disposal of unusually slow moving items.
• Change in design to maximize the use of standards parts and components, which are available off the shelf.

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