PROJECT REPORT

ON
RATIO ANALYSIS IS AN EFFECTIVE AND EFFICIENT TOOL FOR FINANCIAL PERFORMANCE MEASUREMENT-A CASE STUDY OF A LARGE SCALE FERTILISER MANUFACTURING ORGANIZATION

INDIAN FARMERS FERTILIZERS CO- OPERATIVE LTD.

GUIDED BY
SANGRAM KESHARI PANDA ASSISTANT PROFESSOR,MBA INTERNATIONAL SCHOOL OF BUSINESS MANAGEMENT,GANGAPADA,KHURDA,ODISHA

SUBMITTED BY
HARAPRIYA BARIK ENROLMENT No.-102101792 MANAGEMENT PROGRAMME(MP) IGNOU,BHUBANANANDA ODISHA SCHOOL OF ENGINEERING(BOSE) JOBRA,CUTTACK-7,ODISHA

INDIRA GANDHI NATIONAL OPEN UNIVERSITY SCHOOL OF MANAGEMENT STUDIES MAIDAN GARHI,NEW DELHI-110068

SUBMITTED BY HARAPRIYA BARIK ENROLMENT No.-102101792

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the Summer Project Study Report Title RATIO ANALYSIS IS AN EFFECTIVE AND EFFICIENT TOOL FOR FINANCIAL PERFORMANCE MEASUREMENT-A CASE STUDY OF A LARGE SCALE FERTILISER MANUFACTURING ORGANIZATION submitted by Mrs. HARAPRIYA BARIK as partial fulfillment of requirement of the two year management course is a bonafide work carried out by student at our Institute. This Project Study is his original work and has not be submitted to any other University/Institute.

Project Mentor:Asst. Prof. SANGRAM KESHARI PANDA

Date-

CONTENTS
ACKNOWLEGDEMENT DECLARATION ABSTARCT INTRODUCTION OF COMPANY PLANT UNITS INVENTORY MANAGEMENT ROLE OF PURCHASE WAREHOUSE MANAGEMENT DATA ANALYSIS RATIO ANALYSIS CONCLUSION & SUGGESTION BIBLIOGRAPHY

DECLARATION

I am HARAPRIYA BARIK, Enrolment No-102101792, a student of MBA fourth Trisemester INDIRA GANDHI NATIONAL OPEN UNIVERSITY, SCHOOL OF MANAGEMENT STUDIES MAIDAN GARHI,NEW DELHI hereby declare that the Project report titled RATIO ANALYSIS IS AN EFFECTIVE AND EFFICIENT TOOL FOR FINANCIAL PERFORMANCE MEASUREMENT-A CASE STUDY OF A LARGE SCALE FERTILISER MANUFACTURING ORGANIZATION is the original Work and not presented in any other university.

Place: Date: HARAPRIYA BARIK

ABSTRACT

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 MBA students are required to undergo a practical training in some industry. The main objective of this training is to supplement students 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 have done my project report at INDIAN FARMERS FERTILIZERS COOPERATIVE LTD, one of the biggest producers of chemical fertilizers in Asia. The topic assigned to me for my project was RATIO ANALYSIS IS AN
EFFECTIVE AND EFFICIENT CASE TOOL OF FOR A FINANCIAL LARGE PERFORMANCE FERTILISER MEASUREMENT-A STUDY SCALE

MANUFACTURING ORGANIZATION

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.

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INDIAN FARMERS FERTILIZERS COOPERATIVE LIMITED

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 projects at Aonla, Kalol, Phulpur and Kandla have been completed on schedule. Thus all the projects conceived as part of
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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 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 '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.

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LOGO OF IFFCO

The Logo any organizations is very important by which the company is Known to everyone 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.I.Gupta chief visualize developer is like that

Logos 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 IFFCOs product is very good & oval shape is meant for prosperity.

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VISION AND MISSION OF IFFCO

VISION:
To augments the increment income of farmers by helping them to increase their crop productivity through balance use of energy efficient fertilizers, maintain the environment health and to make co-operative societies economically & democratically strong for professionalized services to the farmer community to ensure and empowered rural India.

MISSION:
To provide farmers high quality fertilizers in right time and in adequate quantities with and objectives to increase crop productivity. To make plant energy efficient and continually review various scheme to conserve energy. Commitment to health, safety, environment and forestry development to enrich the quality of community life. Commitment to social responsibility for strong social fabrics. To institutionalized core values and create a culture of a 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 concerns to make working a stimulating and challenging experience for state holders. Building a value driven organization with an improved and responsive customers focus. A true commitment to the transparency, accountability and integrity in principle and practices.

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VISION 2015

In pursuit of its growth and development, IFFCO had embarked upon and successfully implemented its cooperate plan Mission 2005 and Mission 2010. These plans have resulted in IFFCO becoming one of the largest producers and marketers of chemical fertilizers by expansion of its existing units, setting up joint venture companies overseas and diversification into new sectors.

IFFCO has now visualized a comprehensive plan titled VISION 2015 which will be guided by the following objectives: Production of fertilizers through expansion of existing units. \ Setting up of fertilizers production facilities in India and outside the country through joint ventures.

Diversification into other profitable sectors.

Strengthening its raw material sourcing through strategic joint ventures in India and abroad.

Strategic alliances through IFFCO consortium.

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ISO CERTIFICATION:

IFFCO has been giving continuous thrust to quality movement in all functional areas. The Kalol unit was the first in the fertilizers industry to receive the ISO9002 international certification for quality assurance in production, installation and services in august 1996, and this was re-certified from time to time. Phulpur units were also certified by ISO-9002 international certificate in July 2000. Both the Kalol and Phulpur units were considered by M/S bureau VERITAS quality international (BVQI) for their quality system and awarded the certificate as per new ISO 9001-2000. The Kalol unit has been upgraded to ISO 9001-2008 and ISO 14001-2004 and OHSAS 18001-2007 has also been included. The Aonla unit has received international certifications ISO 9001-2000, ISO 14001:2004 and OHSAS 18001: 2007. The adoption of an integrated management system combining all the above systems is also in progress. The Kandla unit had received ISO 14001: 2004 certification.

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FINANCIAL PERFORMANCE

As per its tradition, the societies has again exhibited an impressive financial performance in all its major parameters, namely, Revenue growth and Resource utilization, testifying to the robustness of its corporate strategies of creating multiple drivers of growth in spite of constraints in the availability of raw materials, the Global economic meltdown and inordinate delays in receipt of large subsidy amount of government of India. The society achieved the highest ever sales turnover of Rs 32933 crores. This represents an increase of Rs 170 % over the previous year. While the sales volume of fertilizer materials increased by 20% to Rs 112.58 lacs MT fertilizers during 2008-09, as against 93.24 lacs MT in the previous year, the major increase in the sales turnover was on account of substantial increase in the commodity prices.

DIVERSIFICATION
IFFCO-TOKIO General insurance co. limited pursuant to IFFCOs plan to diversify

into areas other than fertilizers, IFFCO & TOKIO marine and fire insurance company limited. Japan established a joint venture known as IFFCO-TOKIO GENERAL INSURANCE CO. LTD (ITGI) for undertaking general insurance business in India. IFFCO has subscribed to 51% equity in the share holding of ITGI followed by KRIBHCO with 20% and Indian Potash ltd. With 3% and 26% equity has been subscribed to Tokyo marine and fire insurance co. Ltd.

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INFORMATION AND COMMUNATION TECHNOLOGY

IFFCO has set up a hybrid wide area network (WAN) connecting its head office, all production units, all zonal, state and area marketing offices using leased lines, VASTS and ISDN lines. The hub of the networks is the Resource Centre, Gurgoan. The WAN has been integrated with LAN at these offices and has become a lifeline of the organization for messaging, data transfer, online replication, voice communication, access to various remote applications and troubleshooting. Robust security with firewall protection to check unauthorized access has been setup.

To provide uptime of WAN links near to 100 % for critical applications, for example, dispatch, e-procurement, sales and distribution systems etc, additional backup 2 Mbps links have been provided to all the units and the head offices, Delhi, with a redundant link to the township of Kandla unit. These are in addition to the links from BSNL and AIRTEL.

HUMAN RESOURCE MANGEMENT SYSTEM (HRMS)

Suite of 25 applications covering complete life cycle of an employee from recruitment till retirement including post retirement benefits. Integration with accounts. Replication/ sharing of data amongst all units/ office for consolidation , monitoring & MIS Bi-lingual report facility for employee communication. Unique ID for all employees. Data gets replication to other units in case of transfers, promotions etc.

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PROFILE OF PRODUCTS AND SERVICES

1. UREA IFFCO's Urea is not merely a source of 46% of nutrient nitrogen for crops, but it is an integral part of millions of farmers in India. A bag of IFFCO's urea is a constant source of confidence and is a trusted companion for Indian farmer. 2. BIO FERTILIZERS A biofertilizer unit was established at Cooperative Rural Development Trust, Phulpur (Uttar Pradesh) in 1996 - 97 and other at Kalol (Gujarat) in 2003-04 with an annual capacity of 75 MT and 165 MT respectively of different cultures such as Rhizobium,

3. AMMONIUM PHOSPHATE SULPHATE It is the most widely used fertilizer in the country. It is a white crystalline salt, containing 20 to 21 percent ammoniac nitrogen and 17 percent Phosphates. Being soluble in water, it acts quickly, but despite its high solubility, its nitrogen is not readily lost in drainage, because the ammonium ion is retained by the soil particles. it is, therefore, very suitable for wet-land crops

4. NPK (Nitro-Phospho-Potassium)/DAP (Diammonium Phosphate)

As far as Indian farmer is concerned, IFFCO's NPK/DAP is a source of crucial nutrients N, P, K for the crops. The two grades of NPK produced by IFFCO, 10:26:26 and 12:32:16, indicating the content of N, P, K proportion, are tailor made to supply the exact composition required for replenishment of the soil.

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IFFCO ASSOCIATES AND SUBSIDIARY COMPANIES

1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16)

IFFCO-TOKIO General insurance company private ltd. IFFCO Sanchar private ltd. IFFCO Chhattisgarh power ltd. Indian Farm Forestry Development Cooperation Ltd Cooperative Rural Development Trust Oman Indian Fertilizers Company SOC, Oman National Commodity And Derivative Exchange Ltd Indian Potash Ltd Jordan Indian Fertilizers Ltd Kisan International Trading F Z E, Dubai IFFCO Kisan SEZ Legend International Holding IFFCO Kisan Bazaar Ltd Industries Chimiques DU Senegal, Senegal National Collateral Management Services Ltd IFFCO Foundation

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PERFORMANCE HIGHLIGHTS 2009-10

Highest Production of fertilizers 81.98 lacs MT (Previous best 71.68 lacs MT in 200809) Highest Production of Urea 43.24 lacs MT (Previous best 40.68 lacs MT in 2008-09) Production of NPK/DAP/NP 38.74 lacs MT (Previous best 32.26 lacs MT in 2006-07) Highest sales of Fertilizers 118.27 lacs MT (Previous best 112.58 lacs MT in 200809) Highest sales of Urea 63.35 lacs MT (Previous best 58.69 lacs MT in 2008-09) Highest sales of NPK/DAP/NP 54.92 lacs MT (Previous best 53.89 lacs MT in 2008-09 )

Profit before TAX

Rs 567.28 crores (best PBT Rs 807.09 crores in 2002-03)

Profit after TAX

Rs 401.10 crores (best PAT Rs 557.21 crores in 2002-03)

Total turnover

Rs 16808 crores (previous best Rs. 32933 crores in 200708)

Plant Productivity

1608 MT per employee (Previous best 1699 MT in 2005-06)

Highest Marketing productivity

7885 MT per employee (Previous best 7397 MT in 2007-08)

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INTRODUCTION TO THE PLANT UNITS OF IFFCO

DEPARTMENT OF IFFCO PLANT UNITS

IFFCO department unit is divided into following parts: Ammonia plant Urea plant Power generation plant Off site Product handing plant

Ammonia Plant
There are 2 plants of Ammonia, Ammonia-I and Ammonia-II. Each ammonia plant is designed 1350 MTPD liquid Ammonia. Raw material, for producing Ammonia is NATURAL GAS.

PRODUCTION PROCEDURE
Hydrogen and Nitrogen are mixed in the ratio 1:3 to produce Ammonia N113. Source of nitrogen gas is supplied from GAIL (Bombay High). These gases are mixed with stream and then send to primary reformer, further refining is done as secondary reformer where we add air to it. Hot gas from secondary reformer is cooled by heat recovery plant. Now this process gas is introduced to shift converters. Here CO is converted to CO2, and then gas sends it to G.V CO2 removal tanks, where CO2 is removed. This CO2 is then sent to Urea plant to produce Urea.

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UREA PLANT
Physical and chemical properties:Molecular weight = 60.25 Melting point = 132.60 Boiling point = decomposes at atmospheric pressure.

USES
As fertilizers in agriculture. As cattle feed. As an important raw material of industrial household product.

MATERIAL DEPARTMENT
Materials are the most important inputs of any business firm organization. Proper handling and control of material inputs ensures the smooth functioning of plant. Material management included the procurement issuance and control of material in right quantity and at right time to facilities the production function. From this we can gather that material management includes 2 important functions: Purchasing. Storing and control of materials.

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PERFORMANCE OF PLANTS
Production:
Since its inception, the plants have cumulatively produced 1109.03 lacs MT fertilizers materials compromising 671.70 lacs MT of urea and 437.33 lacs MT of NPK/DAP up to the period ending 31st march09 . During the year 2008-09, IFFCO has produced highest ever 71.68 lacs MT of fertilizers consisting of 40.68 lacs MT of Urea and 31 lacs MT NPK/DAP.

UNIT

2008-09 PRODUCTION CAPACITY (LACS MT) UTL. (PER CENTAGE)

2009-10 PRODUCTION (LACS MT) CAPACITY UTL. (PER CENTAGE)

UREA Kalol Phulpur I Phulpur II Aonla I Aonla II Sub Total NPK/DAP Khandla Paradeep Sub Total Total Production 17.94 13.06 31.00 71.68 74.3 68.0 71.4 89.2 23.74 15.00 38.74 81.98 98.3 78.1 89.4 95.6 5.60 6.63 8.40 9.87 10.18 40.68 102.8 120.3 97.2 114.1 117.8 110.3 6.00 7.23 10.00 10.00 10.01 43.24 110.2 103.5 100.0 100.0 100.0 101.9

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NPK/DAP
120 100 80 60 40 20 0 Khandla PRODUCTION08-09 CAPACITY 08-09 Paradeep PRODUCTION 09-10 CAPACITY 09-10

UREA
140 120 100 80 60 40 20 0 Kalol Phulpur I Phulpur - II Aonla - I Aonla -II production 08-09 capacity 08-09 productiion 09-10 capacity 09-10

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Sales Performance
The rain in the current year was not very conductive from agriculture point of view. The food grains production in the year 2008-09 is estimated at about 228 million tonnes as against 247 lacs tonnes in 2007-08. The fertilizers consumption in the country during 2008-09 is estimated at 247 lacs tonnes of NPK as against about 226 lacs tonnes as against 226 lacs tonnes of NPK achieved during 2007-08 representing 9% increase.

SALES OF FERTILIZERS MATERIAL

MATERIAL UREA -Own Sub total NP/NPK DAP/MAP own Sub total Total (NPK/DAP) TOTAL (UREA + NP/NPK+DAP) imported imported 2009-10 43.22 20.13 63.35 27.94 11.14 15.84 26.98 54.92 118.27 2008-09 40.71 17.98 58.69 24.47 6.88 22.54 29.42 53.89 112.58

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DISTRIBUTION NETWORK:
IFFCO distribute its fertilizers in 29 states/ UTs in the country through the cooperative system. As a policy, IFFCO is channelizing its entire production and imports through the cooperative network. IFFCO sells its fertilizers through a network of about 39.862 cooperative societies in different states. Nearly 60 percent of the material was sold directly to societies whereas 35 percent was routed through federations. About 5 % fertilizers are sold through 158 farmers service centers (FSC) run by IFFCO.

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HIERARCHY IN IFFCO

BOARD OF DIRECTORS

CHAIRMAN

VICE CHAIRMAN

FINANCE DEPARTMNET

MARKETING DEPARTMENT

SENIOR EXECUTIVE DIRECTOR (TECHNICAL)

EXECUTIVE DIRECTOR (PRODUCTION & ADMINISTRATION)

EXECUTIVE DIRECTOR (F & A)

TRANSPORT ADVISOR

EXECUTIVE DIRECTOR (KALOL)

EXECUTIVE DIRECTOR (KANDLA)

EXECUTIVE DIRECTOR (PHULPUR)

EXECUTIVE DIRECTOR (ANOLA)

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LINE OF CONTROL IN FINANCE ACCOUNT DEPARTMENT

HOD C.M ( F & A)

SENIOR MANGER

SENIOR MANAGER

MANAGER (ACCOUNTS)

MANAGER (ACCOUNTS)

MANAGER (ACCOUNTS)

MANAGER (ACCOUNTS)

DEPUTY ACCOUNT MANAGER

SENIOR ACCOUNT OFFICERS

ACCOUNTS OFFICERS

JUNIOR ACCOUNTS OFFICERS

SENIOR ACCOUNT
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JUNIOR ACCOUNT

AWARDS WON BY IFFCO

Prestigious Economic Times, Acer and Intel Smart Workshop Award in the manufacturing and industrial segment. Best Content Service as well as the Best Project Management in respect of IFFCO Kisan Sanchar Limited at the World Communication Award Held At London. Best Cooperative Society Award from Public Relation Society of India (PRSI) At Its Golden Jubilee Ceremony in Mauritius.

IFFCO UNITS: KALOL UNIT

National Energy Conservation Award -2008(2nd Prize) From Ministry Of Power, Govt. Of India. Gujarat state safety award 2007 for lowest disability injury index (DII) in the category of chemicals, fertilizers and distillers for the fourth conservative year.

PHULPUR UNIT
First prize for National Energy Conservation Award -2008 in fertilizer sector instituted by bureau of energy efficiency, ministry of power, govt. on India. Golden Jubilee Award in recognition and appreciation of extraordinary accomplishment and contribution to the nation from Chamber Of Commerce & Industry (Eastern U.P)

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AONLA UNIT
Golden Peacock Environment Management Award-2008 during convention on climate changes by world environment foundation. National Award for Excellence in Energy Management-2008 from confederation of Indian industry (CII) as Energy Efficient Unit. Aonla unit bagged TERI Corporate Environment Award 2009 for its effort towards environmental management and inanition initiative.

PARADEEP UNIT
PARADEEP UNIT has won the FAI award for Improvement in Overall Performance for the year 2008-09. FAI Award for Best Technical Innovation implemented in the field of fertilizers technology for the year 2008-09. Paradeep unit also been awarded the The Best Importer for the year 200809 from the Paradeep Port Trust.

KANDLA UNIT
SUN and NDTV Green It Award under category of technology for a greener workplace (1st prize).

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ROLE OF INVENTORY MANAGEMENT

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 60s 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 cooperative 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 ASIAs 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 countrys 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
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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

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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.
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Purpose of Inventory Management:

Inventory management must be designed to meet the dictates of market place and support the companys 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.

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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.
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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.

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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.

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 Reactive methods: the reactive or pull system, as name implies, responds to a channel members 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
47

warehouse. Using fair share allocation, the inventory planner determines the amount of inventory at the plant.

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

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

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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.

49

INVENTORY VALUATION AT IFFCO

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

a) The cost in respect of various items of inventory is computed as under: Raw Materials, Packing Materials, Construction Materials, Loose Tools in Stock, Chemicals & Catalysts in Stock and Stores & Spares at monthly weighted average cost. Stock-in-Process at direct cost and an appropriate portion of overheads. Finished Goods:

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

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

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

- Imported Phosphatic Fertilizers at procurement cost plus direct expenses after adjustment of subsidy as estimated in accordance with known policy parameters in this regard.

b) Net realizable value of Finished Goods is determined at estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

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51

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

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

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

52

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.

OBJECTIVES OF INVENTORY CONTROL

Scientific control of inventories should serve the following purpose: To provide the continuous flow of required materials, part and component efficient and uninterrupted flow of production. To minimize investment in inventories keeping in view of operating requirement. To provide facility for efficient storage of materials so those inventories are protected from loss fire and theft & handling time and cost keep minimum.

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TECHNIQUE OF INVENTORY CONTROL:

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

o Mini Max Plan:

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

o The Two Bin System:

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

o Order cycling system:

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

o Fixation of various levels:

Certain stock levels of fixed level are given below:

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

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

o Control ratios: Inventory turnover ratio helps management to avoid capital being locked of unnecessarily. This ratios revels the efficiency of stock keeping. Inventory turnover ratio is given by: cost of material consumed / cost of average stock held during the period.

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

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

OBJECT
Inventories have to be properly valued because of the following Reasons: o Determination of current income. o Determination of financial position.
55

o Computation of ratios.

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E-COMUNICATION AND CONTROL ON INVENTORY IN IFFCO

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

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

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

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

This mode of supply is not very much profitable for the company because No feasibility Not economical Time taking

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OVERVIEW OF INTERNAL CONTROL RELATING TO INVENTORY

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

In IFFCO, there are 3 types of receipt and issue vouchers, generally used for the particular receipt and issue materials. The lists are as follows: Receipt vouchers: a) SRV (store receipt voucher) b) ISRV (internal store receipt voucher) c) DCSRV (direct consumer store receipt voucher) Issue vouchers: a) SIV (store issue voucher) Adjustment vouchers: a) SAV (stock adjustment voucher) b) STV (stock transfer voucher)

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61

ROLE OF PURCHASE FUNCTION IN IFFCO

The purchase department, in any organization, is at the interface of internal and external environment. This department is responsible for purchase of various machines, raw materials and other items required by the organization. Purchase function from integral part of material management and it play very important function as it through this procedure that the right amount of material required is delivered at the right place and at the right time so that the process of production or manufacturing goes on unhampered. The purchase department of an organization must know following things: Knowledge of the material. Source of material vendors Reasonable price The most important things is the indenter must trust the vendors. Purchasing can also be seen as either strategic or transactional. Also the word direct and indirect have been used to distinguish the two types: strategic (direct) buying involve the establishment of mutually beneficial long term relationship between buyers and sellers. Usually strategic buying involves purchase of material that are crucial to the support of the firms distinctive competence. This could include raw material and components normally used for production process. Transactional (indirect) buying involves repetitive purchases from same vendor, probably through a blanket purchase order. These orders could include products and service not listed on the bills of materials but is used indirectly in producing the items.In more specific terms, todays purchasing departments are responsible for: Coordination purchase needs with user departments. Identifying potential suppliers. Conducting market studies for material purchases Proposal analysis Suppliers selection Issuing purchase orders
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 Meeting with sales representatives

PURCHASE PROCESS
Recognition Needs: The purchase order is made by the purchase department when it feels necessary and on the request of indenting department. Requisition to purchase: this is an intimation to purchase department by the indenter that the needed certain material. He raises request by filling form as material purchase requisition (MRP). In this he furnishes various information:a) Name of the item & its code no. b) Amount required c) Estimated price d) Required delivery date e) Suggested vendors f) Section/ department Code no. MRP security: in this step, scrutinizing of the MRP to certified the genuinely of the need, for this, first approval to given by immediate higher authority of the indenter. Next the MRP is send to the stores, to check whether the material is available or not. If it is available the MRP goes to the purchase deptt. For further action. Here it is scrutinize in three ways: a) Approval scrutiny b) Budget scrutiny c) Technical scrutiny Sending or enquiry/invitation to bid: Proprietary items: these are those items e.g. spares which have to be brought from particular supplier or vendor. Non proprietary items: these are those for which there is no restriction on vendor. Enquiry is sent in order to know the prices and other terms and conditions of vendors. Bidding can be done in 3 ways:

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Proprietary bidding Limited tender enquiry Press tender/open bidding: if the amount of purchase involves more than 3 lacs and item is non proprietary then press tender is issued in newspapers.

Receiving Of Offers: after all bids have been submitted the tenders are open before tender committee to compare the quotations. Quotation comparison statement (QCS) is made and bid with lowest quotation is generally chosen. Purchase Order: after selecting the best offer, purchase order is sent to that vendor with all the terms and conditions specified and details of the materials to be purchased are also given. A bank guarantee of performance is taken from the vendor in advance which is usually 5% of the P.O.A time limit is set for delivery of consignment and in case of delay a penalty is imposed @5% of the P.O per week. Receipt of Material: after the consignment reaches the stipulated place, the payment is done by the organization according to the purchase terms agreed upon the two parties. The material is checked for quality conditions and then sent to the store where the store releases the Store Receipt Voucher, from here it is delivered to the vendor. Follow Up Done For Every Order: it may be regarding delay in supply changes in prices, defective or damaged items supplied etc. For every indent a separate file is opened and correspondence goes on.

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FACTORS FOR PURCHASING

The importance of purchasing is any firm is largely determined the four factors: Availability of materials Absolute dollar volume of purchases % of product cost represented by material Types of material purchased.

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

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PAYMENT AGAINST PURCHASE

There are various modes of payment1. Advance payment to suppliers: Advance payment shall be made to the suppliers only in such cases where it is specifically provide in the contract order. The advance payment to contractors shall be made against submission of bank guarantee in the Performa provided by IFFCO. Advance payment against indemnity bond shall not be release as provided in the purchase procedure. 2. Full Payment / 90% To 95% Payment: In case the terms of payment provide for full payment or part payment against dispatch document through bank, the suppliers will be negotiating the documents through the bankers. After the documents are received by the bankers, they are forwarding bank intimation along with a copy of the purchase order to ascertain that the invoice is raised for the material ordered and conforms to the other terms and condition of purchase orders. After the intimation from the bank is received the received the invoice of the supplier will be scrutinized by the finance and account department for the following: Purchase order number Whether material supplied are as specified in the purchase Quantity supplied Whether excise duty, sale tax and other taxes are as per the order

Where there is delay in supplying the material and the payment through bank is 90% to 95%. It should be ensured that penalty for delay, as provided in the purchase order, is recovered before releasing the balance payment.

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FULL PAYMENT / BALANCE PAYMENT AFTER RECEIPT OF MATERIALS:

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

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

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.

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

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68

ROLE OF WAREHOUSING AND DISTRIBUTION IN INVENTORY MANAGEMENT:

Without warehousing and distribution, stores and restaurants would be empty of both products and customers. All of us depend on warehousing, distribution, and inventory management to provide us with what we want, when we want it, at a price we can afford. Whether your warehouses pallet rack holds shampoo or computer parts, you play a key role in a supply chain that millions of people depend upon to maintain their standard of living. This means warehousing and distribution are worth the time and effort of analyzing the way you manage your inventory. In the chain of events that leads to putting products in the hands of consumers, your warehouse is responsible for receiving, storing, and shipping items. Despite the warehouses important role in inventory management, to this day, warehouses are often a misunderstood and underestimated asset. Here are some key areas where your warehousing and distribution methods affect the profitability of many other companies: Help businesses avoid lost sales. Since you keep goods on hand, businesses are able to sell those goods and avoid losing valuable customers. Help provide discounts. Bulk inventory often equates to discounts for your company and consumers alike. The larger the order and the inventory, the smaller the price is per item. Keeps production rolling. To manufacture an item, factories need all the pieces in sufficient quantities. Warehouses keep those pieces on hand for factories, avoiding the huge expense of halting production.

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WAREHOUSE MANAGEMENT SYSTEM:

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

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NEEDS FOR WAREHOUSING:

Warehousing is necessary due the following reasons:

I.

Seasonable production: you know that agricultural commodities are harvested during certain seasons, but their consumption or use takes place throughout the year. Therefore, there is need for proper storage or warehousing for these commodities, from where they can be supplied as and when required.

II.

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

III.

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

IV.

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

V.

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

VI.

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

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72

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

Storage of goods Protection of goods Risk bearing Financing Processing Grading and branding

Transportation

ADVANTAGES OF WAREHOUSING:

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

Protection and preservation of goods. Regular flow of goods Continuity in production Convenient locationEasy handlingUseful for small businessmen Creation of employment
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VENDOR MANAGED INVENTORY

In its simplest form, Vendor Managed Inventory is the process where the vendor assumes the task of generating purchase orders to replenish a customers inventory. VMI is a term that is used to describe many types of supply chain initiatives. VMI means of optimizing supply chain performance in the manufacturer is responsible for maintaining the distributors inventory data and is responsible for generating purchase orders. VMI is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the suppliers takes full responsibility for maintaining an agreed inventory of the material, usually at the buyers consumptio n location (us ually at the store). A third party logistics provider is involved who makes sure that the buyers have the required level of inventory by adjusting the demand and supply gaps. Under The Typical Business Model: when a distributor needs product, they place an order against a manufacturer. The distributor is in total control of the timing and size of the order being placed. The distributor maintains an inventory plan. Vendor Managed Inventory Model: The manufacturer receives electronic data that tells about the distributors sales and stock levels. The manufacturer can view every item that the distributor carries as well as true point of sales data. The manufacturer is responsible for creating and maintaining the inventories plan. Under VMI, the manufacturer generates the order, not the distributor.

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Advantages of VMI: Higher service degree Higher responsibility & more liberty of the suppliers when disposing the supplies. More economical lot sizes Small stocks with the dealers

VMI reduces stock outs and reduces inventory in the supply chain. Some features are: Shortening of the supply chain. Centralized forecasting Frequently communication of inventory, stock out and planned promotions. No manufacturing promotions Trucks are fulfilled in a priority order.

VMI implementation challenges: VMI can be made to work, but the problem is not just one of logistics. VMI often encounters resistance from the sales force and the distributors. At issue are roles and skills, trust and power shifts. Some of the sales force concerns are: Loss of control Effects on compensation incentives, bonuses may be depends on how much is sold, but sales force has less influence under VMI. Possible loss of jobs Skepticism that it will function well technical problems.

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

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Operational cost of purchase department from 2008-09

Sr. Name of the no. location 1. A B
Wages of officials per annum

Phulpur

03-04 22

04-05 22

06-07 22

07-08 26

08-09 25

Total no. of employees

Wages of officials per annum CM (MAT)

Middle level officer

380231

402882

435008

469035

505734

2330502 2463453 2347417 3414768 4739228 1884399 1979625 1900161 1994622 1725412

Workers level employees

2. A B

Value of machines (16.21% dep. Per year)

PCs Network printer

384596 213925

488247 209748

409102 175747

533409 275960

446943 231227

3. A B C D E

Misc. expenditure

Stationary Postal cover Fax charges Telephone charge

109852 80639

94096 91059

73535 38889

86050 32289

154617 34306 38697 34306

Books/periodical/ 4800 newspaper

4800

4800

4800

4800

Total expenditure of purchase

5388944 5733910 5384659 6810933 7880964 1296 1421 1672 1383 1324

4.

Total no. of orders processed per year

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Internal Lead Time

Sr.no.

Types of order
Up to Rs 15000

No. of days 242

413

Total value of orders (in lacs)

Average lead time in days

1 2 3 4

12.93 193.91 1639.74 9504.56

69 81 78 54
70 DAYS

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

481 160

Above Rs 10 lacs
OVERALL AVERAGE

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WAGES OF OFFICIALS
PER ANNUM

5000000 4000000 3000000 2000000 1000000 0 1 2 3 4 5 6 CM (MAT) MIDDLE LEVEL WORKER LEVEL

VALUE OF MACHINERY
(16.21%DEP. PER YEAR)

600000 500000 400000 300000 200000 100000 0 1 2 3 4 5 PCs Network printer

MISC. EXPENDITURE
180000 160000 140000 120000 100000 80000 60000 40000 20000 0 1

Stationary Postal cover Fax charges Telephone charge Books/periodical/ newspaper 4800 2 4800 3 4800 4 4800 5 4800

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79

SUPPLIERS EVALUATION CRITERIA SHOULD BE USED

Q: 1 HOW TO EVALUATE SUPPLIERS?

Ans: We can evaluate suppliers on the basis of: Prices Quality Services Delivery

Q: 2 How to measure the performance of the suppliers? Ans: Though the little change in their DFD i.e. data floe diagram are: Purchasing Management with SAP Business One.

Q: 3 Why to use SAP BUSINESS ONE? Ans: the Material management system which IFFCO using is in house built and it is not as professional and reliable as SAP BUSINESS ONE, thats why employees there more rely on paper work rather than using the software. SUPPLY BASE REDUCTIONS Q: Why supply base reduction is necessary in IFFCO? Ans: IN IFFCO, the numbers of supplier are as follows: Sr. no. 1. A. B. Name of Location Total no. of vendors Domestic vendors Foreign vendors Phulpur 3161 2921 240

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

CAN GO FOR ANNUAL RATE CONTRACTS

Q: What is the benefit for annual rate contracts? Ans: annual Rate Contracts can help in the establishment of mutually beneficial long term relationships between buyers and suppliers. So, purchasing departments determine what to buy, where to buy it, how much to pay, and ensure its availability by managing the contract and maintaining strong relationships with suppliers. It helps: In reducing lead time In reducing inventory levels, no need to block money in inventory. One time bidding.

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82

COMPARATIVE ANALYSIS OF INVENTORY AVAILABLITY IN IFFCO

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

2008-09 (LACSMT)
0.25 0.25 0.24 0.25 0.26 0.26 0.25 0.26 0.20 0.23 0.24 0.28

2009-10 (LACS MT)

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

UREA 2009-10
JAN 9% 9% 9% 8% 7% FEB MAR APR MAY JUN 8% JUL AUG SEP OCT NOV DEC

8%

8% 8% 9% 9% 8%

ANALYSIS: According to this analysis, IFFCO has increased its production and sales capacity. Though they have enough closing stock of materials in their warehouses as compare to 2008-09. The sales of the urea is very much high in September and October month, though they have enough material in hand to supply.
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84

UREA 2008-09
10% 8% 8% 8% JAN FEB MAR APR 8% 8% MAY JUN JUL 7% 8% AUG SEP 9% 8% 9% 9% OCT NOV DEC

ANALYSIS: This analysis shows that the inventory in the hand of IFFCO was very much constant in volume. In the month of December, company was having 10% of the total product as a stock; this shows the decrease in the sales of the urea in the market.

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CLOSING STOCK (MONTHLY)

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

2008-09
0.95 0.91 0.92 0.88 0.82 0.93 0.87 0.95 0.83 0.90 0.91 0.94

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

NPK.DAP 2008-09
JAN 9% 8% 9% 9% FEB MAR APR MAY 8% JUN JUL 8% 8% 9% 8% 9% AUG SEP 7% OCT NOV DEC

8%

ANALYSIS: This analysis shows that the production of nap/dap is much higher than 2009-10. There is a stable control over storage of finished unsold product.

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NPK/DAP 2009-10
JAN 8% 9% 7% 9% 8% 8% 8% 9% 9% 8% 8% 9% FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

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

RATIO ANALYSIS:It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. It involves comparison for a meaningful interpretation of the financial statements.

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In view of the needs of various uses of ratios the ratios, which can be calculated from the accounting data are classified into the following broad categories

A. B. C. D.

Liquidity Ratio Turnover Ratio Solvency or Leverage ratios Profitability ratios

A. LIQUIDITY RATIO

It measures the ability of the firm to meet its short-term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short-term financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity.

The various ratios that explains about the liquidity of the firm are 1. Current Ratio 2. Acid Test Ratio / quick ratio 3. Absolute liquid ration / cash ratio 1. CURRENT RATIO The current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities.

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Current Ratio = Current Asset Current Liabilities

Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable. 2. ACID TEST RATIO / QUICK RATIO It has been an important indicator of the firms liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities. Acid Test Ratio = Quick Assets Current liabilities Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank balances, sundry debtors, bills receivables and short-term marketable securities.

3. ABSOLUTE LIQUID RATION / CASH RATIO It shows the relationship between absolute liquid or super quick current assets and liabilities. Absolute liquid assets include cash, bank balances, and marketable securities. Absolute liquid ratio = Absolute liquid assets Current liabilities

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B. TURNOVER RATIO Turnover ratios are also known as activity ratios or efficiency ratios with which a firm manages its current assets. The following turnover ratios can be calculated to judge the effectiveness of asset use.

1. 2. 3. 4.

Inventory Turnover Ratio Debtor Turnover Ratio Creditor Turnover Ratio Assets Turnover Ratio

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1. INVENTORY TURNOVER RATIO This ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory. Inventory Turnover Ratio = Cost of goods sold Average Inventory

The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory 2. DEBTOR TURNOVER RATIO This indicates the number of times average debtors have been converted into cash during a year. It is determined by dividing the net credit sales by average debtors.

Debtor Turnover Ratio = Net Credit Sales Average Trade Debtors

Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bills receivables. Average trade debtors (Opening + Closing balances / 2) When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor
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Debtor Turnover Ratio = Total Sales Trade Debtors

3. CREDITOR TURNOVER RATIO It indicates the number of times sundry creditors have been paid during a year. It is calculated to judge the requirements of cash for paying sundry creditors. It is calculated by dividing the net credit purchases by average creditors.

Creditor Turnover Ratio = Net Credit Purchases Average Trade Creditor

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Net credit purchases consist of gross credit purchases minus purchase return

When the information about credit purchases, opening and closing balances of trade creditors is not available then the ratio is calculated by dividing total purchases by the closing balance of trade creditors.

Creditor Turnover Ratio = Total purchases Total Trade Creditors

4. ASSETS TURNOVER RATIO The relationship between assets and sales is known as assets turnover ratio. Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales.

a) b) c) d) e)

Total asset turnover. Net asset turnover Fixed asset turnover Current asset turnover Net working capital turnover ratio

a. TOTAL ASSET TURNOVER This ratio shows the firms ability to generate sales from all financial resources committed to total assets. It is calculated by dividing sales by total assets.

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Total asset turnover = Total Sales Total Assets b. NET ASSET TURNOVER This is calculated by dividing sales by net assets.

Net asset turnover = Total Sales Net Assets

Net assets represent total assets minus current liabilities. Intangible and fictitious assets like goodwill, patents, accumulated losses, deferred expenditure may be excluded for calculating the net asset turnover.

c. FIXED ASSET TURNOVER This ratio is calculated by dividing sales by net fixed assets.

Fixed asset turnover = Total Sales Net Fixed Assets Net fixed assets represent the cost of fixed assets minus depreciation. d. CURRENT ASSET TURNOVER It is divided by calculating sales by current assets

Current asset turnover = Total Sales Current Assets

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e. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital). It is calculated by dividing sales by working capital.

Net working capital turnover ratio = Total Sales Working Capital Working capital is represented by the difference between current assets and current liabilities. C. SOLVENCY OR LEVERAGE RATIOS The solvency or leverage ratios throws light on the long term solvency of a firm reflecting its ability to assure the long term creditors with regard to periodic payment of interest during the period and loan repayment of principal on maturity or in predetermined instalments at due dates. There are thus two aspects of the long-term solvency of a firm. a. Ability to repay the principal amount when due b. Regular payment of the interest. The ratio is based on the relationship between borrowed funds and owners capital it is computed from the balance sheet, the second type are calculated from the profit and loss a/c. The various solvency ratios are 1. 2. 3. 4. 5. 6. Debt equity ratio Debt to total capital ratio Proprietary (Equity) ratio Fixed assets to net worth ratio Fixed assets to long term funds ratio Debt service (Interest coverage) ratio
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1. DEBT EQUITY RATIO Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm. Thus this ratio indicates the relative proportions of debt and equity in financing the firms assets. It can be calculated by dividing outsider funds (Debt) by shareholder funds (Equity) Debt equity ratio = Outsider Funds (Total Debts) Shareholder Funds or Equity The outsider fund includes long-term debts as well as current liabilities. The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 2. DEBT TO TOTAL CAPITAL RATIO Debt to total capital ratio = Total Debts Total Assets

3. PROPRIETARY (EQUITY) RATIO This ratio indicates the proportion of total assets financed by owners. It is calculated by dividing proprietor (Shareholder) funds by total assets.

Proprietary (equity) ratio = Shareholder funds Total assets

4. FIXED ASSETS TO NET WORTH RATIO

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This ratio establishes the relationship between fixed assets and shareholder funds. It is calculated by dividing fixed assets by shareholder funds. Fixed assets to net worth ratio = Fixed Assets X 100 Net Worth The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business.

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5. FIXED ASSETS TO LONG TERM FUNDS RATIO Fixed assets to long term funds ratio establishes the relationship between fixed assets and long-term funds and is calculated by dividing fixed assets by long term funds. Fixed assets to long term funds ratio = Fixed Assets X 100 Long-term Funds

6. DEBT SERVICE (INTEREST COVERAGE) RATIO This shows the number of times the earnings of the firms are able to cover the fixed interest liability of the firm. This ratio therefore is also known as Interest coverage or time interest earned ratio. It is calculated by dividing the earnings before interest and tax (EBIT) by interest charges on loans.

Debt Service Ratio = Earnings before interest and tax (EBIT) Interest Charges

PROFITABILITY RATIOS The profitability ratio of the firm can be measured by calculating various profitability ratios. General two groups of profitability ratios are calculated. a. Profitability in relation to sales. b. Profitability in relation to investments. Profitability in relation to sales 1. Gross profit margin or ratio 2. Net profit margin or ratio 3. Operating profit margin or ratio 4. Operating Ratio 5. Expenses Ratio
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1. GROSS PROFIT MARGIN OR RATIO It measures the relationship between gross profit and sales. It is calculated by dividing gross profit by sales. Gross profit margin or ratio = Gross profit X 100 Net sales

Gross profit is the difference between sales and cost of goods sold.

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2. NET PROFIT MARGIN OR RATIO It measures the relationship between net profit and sales of a firm. It indicates managements efficiency in manufacturing, administrating, and selling the products. It is calculated by dividing net profit after tax by sales. Net profit margin or ratio = Earning after tax X 100 Net Sales 3. OPERATING PROFIT MARGIN OR RATIO It establishes the relationship between total operating expenses and net sales. It is calculated by dividing operating expenses by the net sales. Operating profit margin or ratio = Operating expenses X 100 Net sales Operating expenses includes cost of goods produced/sold, general and administrative expenses, selling and distributive expenses. 4. EXPENSES RATIO While some of the expenses may be increasing and other may be declining to know the behavior of specific items of expenses the ratio of each individual operating expenses to net sales should be calculated. The various variants of expenses are Cost of goods sold = Cost of goods sold X 100 Net Sales

Administrative Expenses Ratio = Administrative Expenses X 100 Net sales

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Selling and distribution expenses ratio = Selling and distribution expenses X 100 Net sales

6. OPERATING PROFIT MARGIN OR RATIO Operating profit margin or ratio establishes the relationship between operating profit and net sales. It is calculated by dividing operating profit by sales.

Operating profit margin or ratio = Operating Profit X 100 Net sales Operating profit is the difference between net sales and total operating expenses. (Operating profit = Net sales cost of goods sold administrative expenses selling and distribution expenses

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PROFITABILITY IN RELATION TO INVESTMENTS 1. Return on gross investment or gross capital employed 2. Return on net investment or net capital employed 3. Return on shareholders investment or shareholders capital employed. 4. Return on equity shareholder investment or equity shareholder capital employed. 1. RETURN ON GROSS CAPITAL EMPLOYED This ratio establishes the relationship between net profit and the gross capital employed. The term gross capital employed refers to the total investment made in business. The conventional approach is to divide Earnings After Tax (EAT) by gross capital employed.

Return on gross capital employed = Earnings After Tax (EAT) X 100 Gross capital employed

2. RETURN ON NET CAPITAL EMPLOYED It is calculated by dividing Earnings Before Interest & Tax (EBIT) by the net capital employed. The term net capital employed in the gross capital in the business minus current liabilities. Thus it represents the long-term funds supplied by creditors and owners of the firm.

Return on net capital employed = Earnings Before Interest & Tax (EBIT) X 100 Net capital employed

3. RETURN ON SHARE CAPITAL EMPLOYED This ratio establishes the relationship between earnings after taxes and the shareholder investment in the business. This ratio reveals how profitability
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the owners funds have been utilized by the firm. It is calculated by dividing Earnings after tax (EAT) by shareholder capital employed. Return on share capital employed = Earnings after tax (EAT) X 100 Shareholder capital employed

4. RETURN ON EQUITY SHARE CAPITAL EMPLOYED Equity shareholders are entitled to all the profits remaining after the all outside claims including dividends on preference share capital are paid in full. The earnings may be distributed to them or retained in the business. Return on equity share capital investments or capital employed establishes the relationship between earnings after tax and preference dividend and equity shareholder investment or capital employed or net worth. It is calculated by dividing earnings after tax and preference dividend by equity shareholders capital employed. Return on equity share capital employed = Earnings after tax (EAT), preference dividends X 100 Equity share capital employed

EARNINGS PER SHARE IT measure the profit available to the equity shareholders on a per share basis. It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding Earnings per share = Earnings after tax Preferred dividends (if any) Equity shares outstanding

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DIVIDEND PER SHARE The dividends paid to the shareholders on a per share basis in dividend per share. Thus dividend per share is the earnings distributed to the ordinary shareholders divided by the number of ordinary shares outstanding.

Dividend per share = Earnings paid to the ordinary shareholders Number of ordinary shares outstanding DIVIDENDS PAY OUT RATIO (PAY OUT RATIO) It measures the relationship between the earnings belonging to the equity shareholders and the dividends paid to them. It shows what percentage shares of the earnings are available for the ordinary shareholders are paid out as dividend to the ordinary shareholders. It can be calculated by dividing the total dividend paid to the equity shareholders by the total earnings available to them or alternatively by dividing dividend per share by earnings per share.

Dividend pay our ratio (Pay our ratio) = Total dividend paid to equity share holders Total earnings available to equity share holders

Or

Dividend per share Earnings per share

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DIVIDEND AND EARNINGS YIELD While the earnings per share and dividend per share are based on the book value per share, the yield is expressed in terms of market value per share. The dividend yield may be defined as the relation of dividend per share to the market value per ordinary share and the earning ratio as the ratio of earnings per share to the market value of ordinary share.

Dividend Yield =

Dividend Per share Market value of ordinary share

Earnings yield =

Earnings per share Market value of ordinary share

PRICE EARNING RATIO The reciprocal of the earnings yield is called price earnings ratio. It is calculated by dividing the market price of the share by the earnings per share.

Price earnings (P/E) ratio = Market price of share Earnings per share

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Data Analysis and Interpretation of Working Capital Ratios:

Working Capital Ratios in order to examine short-term liquidity and solvency of firm is shown below. Working Capital Ratios show the financial ability of the firm to meet its current liabilities as well as its efficiency in managing currents assets for generation of sales. It needs no mention that cash/bank balance is converted into raw materials, raw materials is converted into work-in-progress, work-in-progress into finished goods, finished goods is converted into debtors and receivables through credit sales and finally debtors to cash/bank and this cash to cash phenomenon is technically known as operating cycle and shorter the operating cycle, greater the degree of efficiency in working capital management. CURRENT RATIO: This compares assets which will become liquid within approximately twelve months with liabilities which will be due for payment in the same period and is intended to indicate whether there are sufficient short term assets to meet the short- term liabilities. Recommended current ratio is 2:1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2:1 as above indicates over trading, that is the entity is under utilizing its current assets.

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1) Current Ratio=Current Assets/Current Liabilities In Lacs

Rs.

2008-09 Current Assets 7672.99 Current Liabilities

2007-08 5775.74

2006-07 6081.28

3182.89

1371.57

1201.23

Ratio(Times) 2.41 4.21 5.06

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Current Ratio
Current Ratio

5.06 4.21 2.41

2008-09

2007-08

2006-07

Interpretation: It can be observed that Current Ratio of IFFCO varied between 4.21: 1 and 5.06: 1 during the period from 2007-08 to 2006-2007. Usually, a Current Ratio of 2:1 is considered to be the standard to indicate sound liquidity position and Current Ratio of IFFCO in 2008-09 is 2.41:1 which is quite good for this point of view but it is considerably decreasing from the consecutive three years which is serious matter of thinking for management. In 2008-09 current liabilities increased by 2.32 times or 132 % in comparison to previous year. QUICK RATIO: This shows that, provided creditors and debtors are paid at approximately the same time, a view might be made as to whether the business has sufficient liquid resources to meet its current liabilities. A company in the service industry will not have inventories as such current ratio will not significantly be different from the current ratio.

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This ratio should ideally be 1 for companies with a slow inventory turnover. For companies with a faster inventory turnover, a quick ratio can be less than 1 without suggesting that the company should be in cash flow trouble. Both current and quick ratio offer an indication of the companys liquidity position, but the absolute figures should not be interpreted too literally. It is often theorized that an acceptable figure should be 2:1 for current ratio and 1: 1 for quick ratio but these should only be used as a guide. Different businesses operate in very different ways. 2) Quick Ratio= Quick Assets/Current Liabilities Lacs Rs. In

2008-09 Quick Assets 5952.0043

2005-06 4197.0042

2006-07 3783.8745

Current Liabilities

3182.89

1,371.57

1,201.23

Ratio(Times) 1.87 3.06 3.15

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Quick Ratio
Quick Ratio

3.06 1.87

3.15

2008-09

2007-08

2006-07

Interpretation: Current Assets minus Inventory are Quick Assets and on an average, it has been maintained at Rs. 1.87 in 2008-09 for every rupee of quick liabilities. The Current Ratio and Quick Ratio of IFFCO reflect that short-term liquidity and solvency is in safety and it of course determined how the short-term financial obligation of the firm would be met under such sound financial position. The combined interpretation of these two ratios reflects that the interest of short-term creditors is at all protected by adequate solvency and liquidity of far from money assets. Working Capital Turnover Ratio: Management is required to maintain an optimum level of working Capital. Remember if an entity is having high inventory levels it will incur high storage costs, theft, insurance costs and stock losses. Like wise having low stock levels will disturb the production run of the company as it will regularly run out of inventories thereby loosing important business opportunities. The same can be said of receivables, having more receivable the company may run the risk of bad debts but also being too strict with debt repayment period may result in loss of customers.

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3) Working capital turnover ratio= COGS/Net working capital Rs. In Lacs 2008-09 COGS 31496.75 Net working capital 11,336.77 9,578.09 2007-08 2006-07

4490.10

4404.17

4880.05

Ratio(Times) 7.01 2.6 2.0

Working Capital Turnover Ratio

Working Capital Turnover Ratio

7.01

2.6

2008-09

2007-08

2006-07

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Interpretation: Working Capital Turnover Ratio indicates the efficiency of the firm in utilizing the working capital in the business. Working Capital Turnover Ratio has been found to be positive through out the period under study. It varies between 7.01 times and 2.6 times because previously cost of goods sold was Rs. 11336.77 while in current year it increases by 2.78 times. It leads to increase Net Working Capital Turnover Ratio. This ratio signifies efficient working capital management.

Inventory Turnover Ratio: The ratio is aimed at checking how vigorous the entity is trading. It measures approximately the number of times an entity is able to acquire the inventories and convert them into sales. A lengthening inventory turnover period from one accounting year to the next indicates:

1) A slow down in trading; or

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2) A build in inventory levels, perhaps suggesting that the investment in inventories is becoming excessive.

The higher turnover ratio is good for the firm, but several aspects of inventory holding policy have to be balanced. Lead times Seasonal fluctuations in orders. Alternative use of warehouse space. Bulk discounts.

4) Inventory turnover ratio = COGS/Avg.Inventory Rs. In Lacs 2008-09 COGS 31496.75 Avg.Inventory 1654.23 Ratio(Times) 19.04 5.87 5.04 1930.52 1901.79 11,336.77 9,578.09 2007-08 2006-07

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Inventory Turnover Ratio

Inventory Turnover Ratio 19.04 5.87 5.04

2008-09

2007-08

2006-07

Interpretation:

It indicates extremely good. The ratio indicates how fast inventory is sold. A high ratio is good from the viewpoint of liquidity and vice versa. Inventory Turnover Ratio increases from 5.87 times in 2007-2008 to 19.04 times in 2008-2009.The trend shows inventory turn over ratio increases. However, on overall analysis, it may be opined that inventory management is extremely satisfactory.

Debtors Turnover Ratio:

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Another asset management ratio which is used estimates how long it takes for the credit customers to settle their balances. As outlined above it is very difficulty to establish the optimum level of receivables days, it will always depend with the nature of the business an enterprise is involved. For a Super store receivable days of 5 days will be considered as too long as it is supposed to operate on cash basis. While as in a Transport sector such receivable days will be considered as to mean to the customers and may result in loss of key employees. When setting the receivable days, an enterprise should also consider how long its major suppliers demand their payments. Failure to match receivable and payable days will result in failure to settle short term liabilities when they fall due. Increase in receivable days may also indicate overtrading especially when the profit levels increases, together with receivable amounts but there is no improvement in collection of receivables. The enterprise should always strive to be within the industrial averages because if they are too loose with their customers they run a risk of increasing the bad debtors levels.

3) Debtors turnover ratio = Gross Credit Sales/Avg.Debtors Rs. In Lacs 2008-09 2007-08 2006-07

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Gross Credit Sales 32933.30 Avg.Debtors 410.50 Ratio(Times) 80.23 31.37 24.71 387.72 418.05 12162.82 10330.11

Debtor Turnover Ratio

Debtor Turnover Ratio

80.23

31.37

24.71

2008-09

2007-08

2006-07

Interpretation: The analysis of the debtors turnover ratio supplements the information regarding the liquidity of one item of current assets of the firm. The ratio measures how rapidly receivables are collected. A high ratio is indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that debts are not being collected rapidly.The Debtors Turnover Ratio is
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highest (80.23 times) in 2008-2009 and lowest (24.71 times) in 2006-2007 and average is 92.59 times. Debtors and Receivables management appears to be satisfactory. Simply speaking, more the number of times debtors'

turnover, better the liquidity position of the firm. The combined effect of better management of inventory and debtors & receivables has enabled the firm to generate reported business of the firm.

Some of the reasons for improvement may be:

--Aggressive debt collection by the company. --Strict rules on credit transactions. --Offering cash discounts for early settlement Current Assets Turnover Ratio: Current asset turn over ratio indicates that on an average, the firm has generated sales of Rs. with the current assets worth Rs.

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3) Current asset turnover ratio = COGS/Avg.Current Assets Rs. In Lacs 2008-09 COGS 31496.75 Avg.Current Assets 11,336.77 9,578.09 2007-08 2006-07

6724.37

5923.86

5410.48

Ratio(Times) 4.68 1.91 1.77

Current Assets Turnover Ratio

Current Assets Turnover Ratio 4.68

1.91

1.77

2008-09

2007-08

2006-07

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Interpretation: The Current Assets Turnover Ratio varied between 4.68 times and 1.77 times during the entire period of study. This ratio indicates increasing trend. This ratio indicates that on an average the firm has generated sales of rs.4.68 with current assets worth re.1.And this is indeed a very near to the ground ratio in comparison to the standard norms of the industry.It leads to increase in profitability and productivity of company. Average Collection Period: The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better the quality of debtors, since a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firms credit terms and policy to judge its credit and collection efficiency. An excessively long collection period implies a very liberal and inefficient credit and collection performance. This certainly delays the collection of cash and impairs the firms liquidity. The firm should consider relaxing its credit and collection policy to enhance the sales level and improve profitability.

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3) Average collection period = 365 / Debtors turnover ratio Rs. In crores 2004-05 Days 365 Debtors turnover ratio 365 365 2005-06 2006-07

80.23

31.37

24.71

Ratio(days) 4.55 11.64 14.77

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Average Collection Period

Average Collection Period 14.77 11.64

4.55

2008-09

2007-08

2006-07

Interpretation: Finally, the average collection period is 4.55 days and it indicates that the firm has to wait for 4.55 days for receiving collection from debtors on account of credit sales. On year-wise analyses, it can be observed that the average collection period is decreases .It indicates efficient debtors collection management.

On the basis of overall analysis, it is therefore pertinent to state that the company isnt suffering from crises of working capital. Short term liquidity and solvency of the firm is in very good position. Interest and financial security of the short-term creditors is not at risk. Utilization of current assets should have been made in much more effective manner.Last but not the least, working capital is the blood and life-giving force to the company and positive working capital can only save the life of the firm in

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any way, and company has it then company can meets its liabilities and manage day-to day activities. Research Methodology:No work can be completed without the research methodology. Research methodology is an important tool which provides a technique to conduct the study efficiently and effectively. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. Research design: - research design is the plan, structure and strategy of investigation. Research design of the project will be exploratory research. Exploratory research is often the initial step in a series of studies designed to supply information for decision making. The purpose of this research is to explore the potential problem and opportunities present for the decision situation.

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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

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SWOT ANALYSIS
STRENGTH:
Largest producer of fertilizers in the country. Five strategically located plants with cutting edge production technologies. Most plants achieve capacity utilization in excess of 100%. A large number of co-operative societies are associated with IFFCO (38,155 at present). Vast marketing and distribution network due to the high number of co-operative associates with IFFCO. Their service network and feedback network is also pervasive in INDIAN RURAL AREAS. Highly diverse and strategic portfolio of external investments. No external trade union exercises any power within IFFCO.

WEAKNESS:
IFFCO has a bureaucratic organizational structure and therefore, is obsessed with working within set a framework defined by rigid rules and regulations. This is often discourages innovation and may also cause sub unit conflicts, in some cases, blind adherence to rules and regulations may limit the perspective of a manager and result in functional unit goals overriding organizational goals. The organizational setup is very rigid and not very efficient in handling sudden changes in business environment. There is excessive sub divisions in some departments and this results in inefficiency.

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OPPURTUNITES:
IFFCO has embarked upon a growth plan titled vision 2010to achieve annual turnover of Rs. 15000 crores (USD 3400 million) by the year 2010. Installation of Ammonia/Urea plants and also acquisition of fertilizer units. Generation of power. Production and marketing of micro nutrients, seeds, bio fertilizers, pesticide etc. Value addition to Agri-Products and Marketing. Banking and Financial Services. Information Technology and IT enable Services. Establishments of Retail Chain in Urban and Semi- Urban locations.

THREATS:
Competition from KRIBHCO i.e. Krishak Bharti co-operative another government under taking which also produce fertilizer and is very similar to IFFCO in nature. Aggressive competition from private companies which are now entering the fertilizer sector. The government of India has a major influence on the functioning of IFFCO. It is the government which decides what to produce?, how much to produce? and where to sell?. This factor often becomes IFFCOs major weakness as it sometimes has to functions undue political pressure and takes steps which are non- profitable. Government policies on import of fertilizers from foreign nations and decrease in subsidies.

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SUGGESTIONS:

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

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

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

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

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

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

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INDIAN FARMERS FERTILIZERS COOPERATION LIMITED

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BIBLIOGRAPHY
Books: Management Accounting Financial Accounting

Dr. S.P.Gupta Khan And Jain

References: Marketing News Paper Magazine Philip Kotler The Economic Times Business Today

Annual Report Of IFFCO 2009-10 Marketing News Of IFFCO (Weekly) Website : www.iffco.nic.in

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