KRIBHCO

C H A P T E R – I: EXECUTIVE SUMMARY1 The Indian Fertilizer industry had a very humble beginning in 1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual capacity of 6000 MT. The Fertilizer & Chemicals Travancore of India Ltd. (FACT) at Cochin in Kerala and the Fertilizers Corporation of India (FCI) in Sindri in Bihar were the first large sized fertilizer plants set up in the forties and fifties with a view to establish an industrial base to achieve self-sufficiency in food grains. Subsequently, green revolution in the late sixties gave an impact us to the growth of fertilizer industry in India. The seventies and eighties then witnessed a significant addition to the fertilizer production capacity. I am obliged in presenting the project report on “Inventory Management” in KRIBHCO. The concept of total Inventory control is the main consideration of this study. The inventories constitute major portion of finished product and any reduction in Inventory cost each stage like, purchase, storage and issue etc. contributes direct to the profit of the company. To contribute and improve the existing system of Inventory Management, Various areas of Inventory Management were studied, analyzed and evaluated taking into consideration the scientific approach. The areas of study were: (a) Purchase system. (b) store control and 2 (c) Use of various Inventory control techniques etc.  WHAT DO YOU MEAN BY CO-OPERATIVE? A cooperative is an autonomous association of persons united voluntarily to meet their common social and cultural needs and aspirations through jointly owned and democratically controlled enterprises. Cooperatives are based on the values of self-help, self-responsibility, democracy, equality and solidarity.  What is Fertilizer? Fertilizer: A fertilizer is any material, organic, inorganic, natural or synthetic, that is placed on or incorporated into the soil to supply plants with one or more of the chemicals elements necessary for normal growth. Fertilizer is the material, which supplies the chemicals elements required for plant growth. Primary nutrients like nitrogen, phosphates and potassium (required for fertilizer land) are supplied through chemical fertilizer. 3 II: COMPANY PROFILE 4 .C H A P T E R . of India. registered under Multi-State Cooperative Societies Act – 1985. organic. Fertilizer is the material. a premier Co-operative Society for manufacture of fertilizer. Primary nutrients like nitrogen. Fertilizer production is of permanent importance for this country because Fertilizer increases agriculture productivity. that is placed on or incorporated into the soil to supply plants with one or more of the chemicals elements necessary for normal growth. Krishak Bharati Co-operative Limited (KRIBHCO). HISTORY OF THE ORGANIZATION:- “A fertilizer is any material. was promoted by the Govt. which supplies the chemicals elements required for plant growth. phosphates and potassium are supplied through chemical fertilizer. 5 . natural or systematic. Of fertilizer can increase the food grain production by 8-10 kg. NCDC and other agricultural cooperative societies spread all over the country. inorganic. Fertilizer response studies have proved that 1 kg. IFFCO. 890 crores as against the estimated cost of Rs. 1985 and within a very short time of 3 months. Since then. Ammonia & Biofertilizers at Hazira. 1982. near Kawas village. 957 crores. 1986. The total Project cost was Rs. Late Smt. This shows a saving of Rs. 6 . it has excelled in performance in all areas of its operations. KRIBHCO was amongst the first two projects in the first phase. 15 Kms from Surat city and 20 Kms from Surat Railway Station on Surat – Hazira State Highway. which is a rare feature in the history of a Public Sector Unit. the commercial production commenced from March 01. The trial production of Urea commenced from November 26. former Prime Minister of India laid the Foundation Stone on February 5. in the State of Gujarat. on the bank of river Tapti. KRIBHCO has setup a Fertilizer Complex to manufacture Urea. 67 crores (approximately 7%) in Capital Cost of the Project. Indira Gandhi.Oil & Gas findings in Bombay High and South Basin triggered off the birth of eight new generations fertilizer plants to fulfill ever-growing food needs of the country. K. 1998. rural development trust. KRIBHCO has also completed the installation of an expansion of the Bio-Fertilizer plant with an additional capacity of 150 MT and the same was commissioned in December 1. a Bio-fertilizer plant of 100 MT per year capacity was commissioned at Hazira on August 15. KRIBHCO multiunit co-operative societies were promoted jointly by IFFCO and the agricultural co-operative all over the country. U. Indira Gandhi then the Prime Minister Of India on 5th February. 1982 31st MAY.Subsequently. 1985  PROMOTERS:GRAMIN VIKAS TRUST Gramin Vikas Trust (GVT) is a separate legal entity promoted by KRIBHCO. The project is now being implemented by GVT with the assistance of Department for International Development. 1995. GVT is an independent legal entity implementing various Rural 7 . 1981 Late Smt. KRIBHCO has promoted Gramin Vikas Trust as a non-profit. HISTORY AND DEVELOPMENT:PROJECT ZERO DATE FOUNDATION STONE LAID BY PROJECT COMPLETION 31st MARCH. Chhattisgarh and West Bengal in Eastern India.  VISION:- KRIBHCO will become one of the leading fertilizer producers in the world funding growth through:  Efficient Production  Efficient Distribution  Efficient diversification  Efficient Utilization of Resources We want to be a world class organization that represents the farmer community and maximizes returns to them through specialization in agricultural inputs products and other diversified businesses that maximize stakeholder value. and  MISSION:- 8 .Development Projects in Rainfed. Jharkhand. Rajasthan. The trust is operating in Madhya Pradesh. poorest of the poor areas of western and eastern India. and Gujarat in the Western India and Orissa.  COMPETITORS:9 .  PRODUCTS:KRIBHCO is manufacturing Nitrogenous Fertilizers and Allied Products viz. protection and go to the satisfaction of customers. 3. Besides. and Bio-fertilizer. it’s also has a 30 Mega Watt Power Plant of its own for generation of Power to meet its requirement. KRIBHCO has also been assigned the job of Operation & Maintenance of “Heavy Water Plant” of Department Of Atomic Energy. 4. financing and managing commercially profitable. Continually upgrading technology to improve plant efficiency and reliability.To act as a catalyst to agricultural and rural development by selecting. Ammonia Liquid. Improving the skills and knowledge of personnel. KRIBHCO – Hazira Plant shall achieve this Quality Policy through following Objectives:1.: Urea. 2. Continuously improving the Quality management system. Maintaining and improving the safety and environmental performance.  QUALITY POLICY:Management of KRIBHCO. environmental. Hazira Plant is committed to operate and maintain its Fertilizer manufacturing complex through quality assurance. (NFL) 2. Ltd. (HCL) Naively Lignite Corporation Ltd. which are producing fertilizer. • • • • • 10 Gujarat Narmada Valley Fertilizer Co. (IFFCO) Krishak Bharati Co-Operative Ltd. (HLL) Hari Fertilize ICI India Ltd. (RCFL) National Fertilizer Ltd. . (FACT) Hindustan Fertilizer Corporation Ltd. • • Indian Farmers Fertilizers Co-Operative Ltd. Phosphates And Chemicals Ltd. (HFC) Madras Fertilizer Ltd. (PPCL) Pradeep Phosphates Ltd. (KRIBHCO) 3.Co-Operative Sector:There are only two fertilizer manufacturing societies in Cooperative sector. Indo Gulf Fertilizers & Chemicals Corporation Ltd. PUBLIC SECTOR:• • • • • • • • • The Fertilizer And Chemicals Travancore Ltd. Private Sector:There are 17 companies in private sector. (NLC) Pyrites. (GNFC) Hindustan Lever Ltd.1. (PPL) Rashtriya Chemicals And Fertilizers Ltd. (MFL) Hindustan Copper Ltd. D.• • • • • • • • Mangalore Chemicals & Fertilizers Ltd. Nagarjuna Fertilizer & Chemical Ltd. SAMBHA SHIVA RAO 11 . (MCFL) Southern Petro Chemicals Industries Corporations Ltd. Zuari Agro Chemicals Ltd.CHAIRMAN Dr. Chambal Fertilizer & Petrochemical Corporations Ltd. (NFCL) Shri Ram Fertilizer & Chemicals Ltd. Bindal Agro Chemicals Ltd. Chandra Pal Singh • MANAGING DIRECTOR Shri B. Patel • VICE.Sinha • FINANCE DIRECTOR Shri R. Tuticorian Alkali Chemicals & Fertilizer Ltd. Or Oswan Ltd. Gujarat State Fertilizer Company (GSFC) •  BOARD OF DIRECTORS • CHAIRMAN Shri Vaghjibhai.R.Kamra • MARKETING DIRECTOR Dr. Sudhakar Chowdary Shri Mathew C Kunnumkal Shri Deepak Singhal Shri SHIV Narayan Prasad Mishra Shri S.• OPERATION DIRECTOR Shri SALAN JAGGIA • DIRECTORS Shri V. OF FERTILIZER & CHEMICAL | CHAIRMAN | BOARD OF DIRECTOR | MANAGING DIRECTOR | OPERATIONAL DIRECTOR  SALES: 12 .S. Jamgod Shri Ponnam Prabhakar  ORGANIZATION CHART OF KRIBHCO:- GOVERNMENT OF INDIA | MINISTRY OF AGRICULTURE | DEPT. 19 Million MTPA of Ammonia.  TURNOVER:The turnover of the KRIBHCO is round about 2300 crores.65 Million MTPA of granular Urea & 1.  MARKET SHARE:The market share of the KRIBHCO is decided by the Co-operative Society. A highly skilled workforce from KRIBHCO is participating directly in operation & maintenance of the project under a “Personnel Supply Agreement”. So the 20% share is their own and the 80% share is decided by the Government of India. 13 . • OMIFCO has a capacity of 1. Sales in the state of Gujarat are accounted for on dispatch basis and sales through Krishak Bharti Sewa Kendra’s are accounted for on cash and carry basis.  Joint Ventures: KRIBHCO has various JV’s with many of the well renowned companies of India as well as of the world.Sales are accounted for on the basis of Released orders issued to customers.5 Million representing 25% of paid up equity capital of OMIFCO. Its JV’s are stated as under: • Oman India Fertilizers Company (OMIFCO): • KRIBHCO is one of the sponsors of Oman India Fertilizer Company (OMIFCO) with equity investment of USD $ 69. 15% of NFCL’s paid up share capital of Rs. 0. • The society has invested Rs.” In 2006.86 Million MT of KRIBHCO branded Urea. other Gujarat Government Companies. which is 2.89 Million MT of KSFL Urea was sold by the society. 807 Million towards equity of GSEG.465. 1160 Crore. at a capacity utilization of 122% during the financial year 2008-2009.16 crore. The Society Holds 27.48% of Share Capital in GSEG. • Gujarat State Energy Generation Limited (GSEG): • Gujarat State Energy Generation Limited (GSEG) is a Joint Venture company with Gujarat State Petroleum Corporation Limited (GSPCL). During the year 2008-2009. The company achieved the data of zero Inventories & zero dues as on 31-03-2009. KRIBHCO is handling& Marketing 50% of the Urea produced by OMIFCO. District Surat. • GSEG is implementing 350 MW expansion project at a cost of Rs. has an annual production capacity of 0. Gujarat. • KRIBHCO Shyam Fertilizers Limited (KSFL): • Shahjahanpur Fertilizer Complex acquired by KRIBHCO through its Joint Venture Company “KRIBHCO Shyam Fertilizers Ltd. GSEG is operating a 156 MW Natural Gas based combined cycle power plant at Mora.10.01 Million MT Urea. a unique achievement in Fertilizer sector.• OMIFCO has produced 2.00 crore in NFCL. • KRIBHCO has 85% equity with entire management control of the company & Marketing rights of entire produce. and KRIBHCO & GAIL (India) Ltd. 14 . • Nagarjuna Fertilizers and Chemicals Ltd (NFCL) • The Society has an equity participation of Rs. • Hazira Phase-II: Society is in the process of setting up a state of the art mega size ammonia plant of capacity of 1850 MTDP and urea plant of capacity of 3250 MTDP at existing fertilizer complex at Hazira. • • • • KRIBHCO has won INDIRA GANDHI RAJBHASHA PURUSKAR (2nd) for 200304. and 2004-05. KRIBHCO receives the Rajbhasha Award from Honb'le Minister of Chemical and Fertilizers for 2002-03. FAI best performance award for performance of Bio-Fertilizer plant from fertilizer Association of India for the year 2002 for the third time. • 15 .  AWARDS WON:The excellence performance of the society has brought a number of laurels form various organization. and marketing of Bio-fertilizers for the year 2004-05 on 1st of December '05 by FAI. KRIBHCO receives Gold star award of Excellence from Institute of Economic Studies for its overall excellent performance. Plant will be based on natural gas and we have energy consumption. Promotion. Existing infrastructure facilities will be utilized resulting in saving of cost. KRIBHCO was awarded First prize for Production. 2003-04. The awards received during year were as follows: • KRIBHCO receives Gold star award of Excellence from Institute of Economic Studies for its overall excellent performance. “Excellence in Improving Productivity” conferred by South Gujarat Chamber of Commerce & Industry for the year 2007-2008 on 25th January.47 LAKH MT. Won “Sarvottam Stall” prize in Pusa Krishi Vigyan Mela at New Delhi Certificate of merit Gujarat safety council for relining 30 lakh accident free manhours. of Employees 62 82 09 101 55 32 210 29 45 56 90 101 13 54 440 1374 1600 2974  • Highest Total Fertilizer Sales (Urea-38. 2009 • • •  DEPARTMENTS:Departments Finance and Accounting Personnel and Administration HRD Security Material Medical Mechanical Transportation Fire and safety Purchase and store Instrumentation Electrical/Civil MS System Laboratory Production (HAEP Plant) Phase-I and Phase-II Total Contract Labours Total Manpower PERFORMANCE HIGHLIGHTS : No.14 LAKH MT.• “Star Industry of Surat-2008” conferred jointly by leading newspaper ‘Gujarat Mitra’ and ‘Consumer forum’.51 Lakh MT 16 .90 LAKH MT) 40. DAP-1. and MOP-0. (Previous best was 37.14 Crore during 2008-09) Highest Operational Profit Of Traded Products (Previous best was Rs. 63.31 Crore • Highest Daily Urea Production on 13/11/09 (Previous best was 5564 on 28/10/09) 5638 MT • Highest Daily Ammonia Production on 28/12/09 (Previous best was 3433 MT on 25/10/09) 3452 MT • Highest Monthly Ammonia Production in December.96 Lakh QTLS during 2008-09) Highest KBSKs Turnover (Previous best was Rs.22 Lakh QTLS Rs. 3.45 LAKH MT during 2006-07) Highest Seed Sale (Previous best sales was 1. 2009) 167901 MT 17 .74.80 Crore during 2008-09) 12.76 LAKH MT of Urea during 2008-09) • • • • Highest Imported Fertilizer Handled (Previous best was 10.12 Lakh MT 2.97 Crore 43. 2009) 104740 MT • Highest Monthly Urea Production in December. 2009 (Previous best was 104444 MT in October. 2009 (Previous best was 166960 MT in October. 97.70 Crores is the graphical representation of Sources of Finance. 38.SOURCE OF FINANCE: EQUITY: Government Of India IFFCO Other Societies The following : Rs.00 Crores : Rs. S ource of Finance GOI Iffco Other Societies 77% 16% 7% (Source: Annual Report of KRIBHCO-2000-01) 18 .00 Crores : Rs. 450. III: OBJECTIVE OF THE STUDY A. stores or spare parts. • To minimize idle time caused by storage of raw materials. • OTHER OBJECTIVES: To provide necessary guidelines for determining economic order quantity.C H A P T E R. PRIMARY OBJECTIVE: Primary objective of the present study is to understand the techniques of the Inventory Management used in this concern. B. • To keep capital investment low in inventories. re-ordering levels and classifications of items using appropriate basis. 19 . with a view to find out the extent to which the concepts of scientific Inventory control are being applied to them. and keep down Inventory carrying cost and obsoletes losses. C H A P T E R – IV: RESEARCH METHODOLOGY 20 . how the Inventory Management is done?) the existing Inventory control techniques were studied. 21 .e. Why Inventory Management? 3. the discussions were carried out with various personnel of M/s. to obtain the answer to the third question (i. so as to meet the requirement of the situation. Thus the different methods and techniques were used at different stages of the project like interviews. and discussion has been done for the data collection. and secondary data like annual reports. observation. discussions. What is Inventory Management? 2. observation and day-to-day work is used for study. However. How the Inventory Management is done?  Collection of data To obtain answers to the first two questions.  PRIMARY DATA:To study Inventory procedure. a relationship and link was sought between theory & practice and it was found that many aspects from Theory can be and are being used in practice and necessary suggestions were made to promote existing Inventory Management at various level. METHODOLOGY OF THE PROJECT: The methodology used for study was to answer three questions covering broad areas of Inventory Management are as follows: 1. finance. KRIBHCO. manuals and other reports and files. For finding Expert’s opinion & their problem.  LIMITATIONS OF THE PROJECT: During the project work. to calculate  The researcher is not willing to reveal some confidential data and setup and limited vision regarding the KRIBHCO inventory.000. some books. Minimum level etc. it has vast varieties of inventories items. about 66. I have experienced the following limitations:  As KRIBHCO is a chemical manufacturing society. SECONDARY DATA:- For secondary data. journals from library and websites are referred. ROL level.  TIME FRAME:- Total 60 days study has been conducted at KRIBHCO for completion of this. 22 . Maximum level. Thus it was very difficult different levels like: EOQ level. C H A P T E R – V: TITLE OF THE PROJECT INVENTORY MANAGEMENT 23 . Inventory means the value of raw materials. It can also be identified that Inventory are those goods which are placed. Inventory is stock of the product a company is manufacturing for sale and components that make up the product. work in process.” Inventory Management is a big part of profit planning for manufacturing and merchandizing companied. finished goods. consumables spares. In the financial terms. It is. INTRODUCTION OF INVENTORY MANAGEMENT:- The dictionary meaning of the word “Inventory” means stock of goods. and scrap in which company funds have been invests. stored and used for day to day functioning of the organization. Because of the large size of inventories are maintained by firms a considerable amount of funds is required be committed to them. Inventory constitutes the most significant part of current assts of a large majority of companies in India. Inventory management is the planning and coordinating and controlling activities related to the flow of inventories into through and out of an organization. Thus Inventory can be defined “an ideal resource of any kind having an economic value. 24 . On an average inventories are approximately 60% of current assts in public limited companies in India. Material costs often accounts for more than 40% of total costs of manufacturing companies and more than 70% of total costs in merchandizing companies. therefore absolutely imperative to manage efficiently and effectively in order to avoid unnecessary investment.  OBJECTIVES OF INVENTORY MANAGEMENT:- In the context of inventory management the firm is faced with the problem of meeting two conflicting needs. The major dangers of over investment are: a) Unnecessary tie up of the firm’s funds and loss of profit and opportunity costs. and c) Risk of liquidity. 25 .  To maintain a large size of inventories of raw material and work-in-process for efficient and smooth production and of finished goods for uninterrupted sales operations. An effective inventory management should − Ensure a continuous supply of raw material to facilitate uninterrupted production. The firm should always avoid a situation of over investment or under investment in inventories. and Failure to meet delivery commitments. − Maintain sufficient stocks of raw materials in periods of short supply and anticipated price changes. Te optimum level of inventory will lie between the two danger points of excessive and inadequate inventories.  To maintain a minimum level of investment in inventories to maximize profitability. efforts should be made to place an order at right time with the right source to acquire the right quantity at the right price and quantity. The consequences of under investment in inventories are: a) b) Production hold ups. b) Excessive carrying costs. The objective of inventory management should be to determine and maintain optimum level of inventory investment. Thus. − Maintain sufficient finished goods inventory for smooth sales operations and efficient customer services, − Minimize the carrying costs and time, and − Control investment in inventories and keep it at an optimum level.  NEED TO HOLD INVENTORIES:- Maintaining inventories involves tying up of the company’s funds and incurrence of storage and handling costs. There are three general motives for holding inventories. 1. Transactional motive: It emphasizes the need to maintain inventories to facilitate smooth production and sales operations, which is for the day-to-day use? 2. Precautionary motive:(Safety Motive) It necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. 3. Speculative motive: It influences the decision to increase or decrease inventory levels to take advantage of price fluctuations. 26  TYPES OF INVENTORIES : Inventories can be classified in terms of its different uses, which will enable one to appreciate the peculiarities and problems in its uses. Secondly the differentiation based on uses of inventories will enable one to adopt control techniques to suit the needs. Here are the 4 main types of the Inventories:1. Raw Material 2. Stores, Spares and Consumables 3. Work – in – process 4. Finished Goods 1. Raw Materials:Raw Materials are those basic inputs that are converted into finished products through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future productions. There are two important factors, which determine the size of raw materials Inventory. a) Consumption rate and b) Importance of item. Under the head of the raw material maintained in fertilizer company KRIBHCO are Carbon Di Oxide, Ammonia, etc. MAIN RAW MATERIAL IN THE KRIBHCO: NATURAL GAS 27  NAPHTHA  WATER  ELECTRICITY 2. STORES and Consumables:A. Consumables:These are the materials which work as catalysis in the production process and are not directly found in the output. This enables the production process to function smoothly. Fuel, oil etc are the example consumables. B. Spares:Spares form an importance class of inventories by themselves. Then consumption pattern defers from that of raw materials, consumables and finished goods, consequently the stocking polices are different necessitating special methods for solving their peculiar Inventory problems. Spares parts can be classified as routable spares, insurance spares, capital spares, maintenance spares and over handling spares etc. 3. Work – in – Process:Work-in-Process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale. Work in process goods acts as a buffers within the manufacturing sub-system, which may consist of group of machines and assembly lines, i.e. work centers. The raw material passes through the work centers for final production. The greater the period of process, there will be more amounts of manufacturing activities. 4. Finished goods:28 Stocks of raw materials and work-in-process facilitate production. shortages and stocks outs. Thus. Following are the factors for adopting view of scientific Inventory control. scientific determination of economic order quantities and 29 . the problem of investment. storage. The surplus of stocks has been a principal guide of business failure. inventories serve as a link between the production and consumption of goods. Normally These Inventories Are Controlled By the Marketing Dept.e. which can be easily eliminated by scientific Inventory control methods.  WHY INVENTORY MANAGEMENT? THE NEED Since the advent of modern industrialism. The larger the range of requirements. . accounting. WIDE VARIETY AND COMPLEXITY: The wide variety and complexity of modern requirements are also necessities conscious Inventory Management. wealth has become more and more identified with Money. makes possibilities of substantial saving through improvement in Inventory control system. I. An increased emphasis on liquidity has led businessman to hold cash and securities in performance to inventories. these purpose the need for careful competition of requirements timely initiation of procurement action. Further the size itself. Inventories are now often referred to as the grace yard of business. procurement.These inventories are those completely manufactured products which are ready for sale. Thus led manager to change their view regarding holding of inventories and adopt scientific way of Inventory holding. while stock of finished goods is required for smooth marketing operations. SIZE OF BUSINESS: The increasing size of business establishment has helped an important role. Urea Is The Final Product of KRIBHCO. holding. obsolesce etc. Modern large-scale enterprises often operate with small profit margin. deterioration. the greater the number of problem of Inventory i. to find cash not only for inventories but also for wages. Inventory carrying cost and observances losses. stores.  PROS OF INVENTORY MANAGEMENT:1) Inventory control ensures an adequate supply of materials. Since time is money and waiting is costly inventories have to be maintained. a purposeful reporting system to highlights areas requiring special attention and for a variety of other control measures. an industrial establishment has. URGENCY IN MATERIAL REQUIREMENTS: The need and important of inventories varies in direct production to the ideal time. involving expenditures on labor. II. The only way to prevent as to secure a rapid capital turnover of capital and the most effective means of achieving these objectives is to control stores. machines etc. cost of men and machinery and urgency of requirements. minimize stock outs and shortage and avoids costly interruption in operation. III. stores and power bills. NEED FOR LIQUIDTY : The need for liquidity is much greater than in trade. The reason is that manufacturing is the process of continual conversion of raw materials in to finished product. But it is highly uneconomical to keep man machine waiting and the requirements of modern life are so urgent that they cannot wait for materials to arrive after the need for them has arisen. At the time it is also necessary to control them the reason being is that the inventories not only tie up lot of funds but also a deal to carry those controlled inventories is industries concern. 2) It lowers down investment in inventories. spares. therefore. maintenance.optima safety stock levels. 30 . etc. regulations. 4) It eliminates duplications in ordering or in replacing stock by centralizing the source from which purchase requisitions emanate. 6) It facilities cost accounting activities by providing a means for allocating material costs to products. 9) It services as a means for locations and disposition of inactive and isolate items of stores. Credit availability and govt. 31 . 7) It provides a check against the loss of materials through carelessness.  FACTORS INFLUENCING INVENTORY DECISIONS:There are both external and internal factors. departments or other operating accounts.3) It facilities purchasing economics through the measurements of requirements on the basis of recorded experiences. The external factor arises from market conditions. Inventory in an organization. while internal factors are controlled with effective Inventory Management. 10) Perpetual Inventory values provide a consistent and reliable basis for preparing financial statements. the external factors are not controllable easily. 5) It permits a better utilization of avoidable stocks by facilitating inter department transfer within a company. which influence decision-making. 8) It enables Management to make cost and consumption comparison between operations and periods. Any strategy to reduce the lead-time should be directed. Evidently during lead-time there will be no delivery of materials and the consuming department will have to be served from the Inventories held.Following factors influence the Inventory decisions of an organization:[1] LEAD TIME [2] RELEVANT COSTS [1] LEAD TIME:Lead-time can be defined as the periods that elapse between the reorganizations of a need and its fulfillment. Inventories have to take care of normal consumption during the lead-time. Therefore. The time spent each of these four stage will vary from item to item.  TRANSPORTING LEAD TIME AND  INSPECTION LEAD-TIME. lead-time is the time taken to physically receive the materials from the date of its indent. There is direct relationship between lead-time and Inventories. This should be taken care of while negotiating the order and supply details. 32 . FIRST towards these two components. The lead-time can be classified as:  ADMINISTRATIVE LEAD-TIME.  MANUFACTURING/PROCUREMENT LEAD TIME. as lead-time increases the Inventories will have to increase correspondingly. Procurement or manufacturing lead-time is the largest time. Both lead time and consumption can increased without notice and the Inventories will have to be geared up from this contingency. It is clear that out of 4 components of lead-time administrative and inspection lead times are under the control of purchaser. In other words. A cost trade off but not below a threshold can reduce the transportation cost. COST OF UNDER STOCKING 4. there are the cost of ordering. The cost of ordering includes cost due to: (a) Stationery. (b) Follow up costs. To control the ordering cost the no. COST OF ORDERING:The activities that are carried out for fulfilling the need for materials. COST OF CARRYING INVENTORY 3. telephone cost. Of men in purchasing should be kept as low as possible. any jump in total salary paid should not be allowed unless there is a corresponding increase in no. Their costs are – 1. It will be worthwhile to use over-time when there is a marginal increase in the no. (c) Cost incurred by the goods receiving pay. which consume executive and non. COST OF ORDERING 2. telegram and postal bills. The major components of ordering costs are salaries paid to the purchase department. (d) Rent and depreciation on the space and equipment utilizes by the concerned purchasing personnel. (f) Cost of source development. stationary and communication charges.[2] RELEVANT COSTS:The Inventory problem is one of the balancing various costs. so that the total cost is minimized. (e) Salary and statutory payments to the purchasing personnel. of orders. 33 . OVER STOCKING COST SERVICE LEVEL 1. formalities etc.executive time. Hence. The total cost incurred on the all these heads during a year divided by number of orders in that year will give average cost per order. typing and dispatching are orders. inspection and handling. which include travelling costs. of orders. COST OF CARRYING INVENTORY:The motivating factor to control Inventory is the cost incurred by holding it. than the extra charges are also included in the cost. This competition of this cost quite tricky. wastages and breakages and while unloading. Salaries and stationery payments to stores personnel. 4. the weighted average cost of capital or bank rate can be used and also opportunity criteria can be used. the material become useless. In the case of items which will ultimately be used. In a production. This cost is expressed as a percentage of the average investment in Inventory.2. in addition to the loss of the production there are intangible loses such as losses of morale and increased business of workers. Losses due to pilferage. OVER STOCKING COST:This cost is basically the opportunity cost due to the investment in Inventory for a longer period than necessary. This is usually measured in terms of opportunity cost due to loss of production by the indenting cost of a line. This cost is equal to carrying cost. due to technological charges. The items. 6) 7) 3. UNDER STOCKING COST:Under stocking or stock out cost is due to non-stocking of Inventory. which are not 34 . this cost be used after a certain period. For calculating cost of capital. like due to spoilage must be taken into account. If a stock out results in an expedited order. This includes1) Cost of capital due to the money invested in Inventory. Insurance costs incurred to protect against fire and related risk. 2) 3) 4) 5) Cost of storage job to rent and depreciation charges incurred on the spare Cost of detoriation of item. stores and other equipment used to store the item. Obsolescence cost. and with the Management decision on service level. The relations between service level. The Management has to decide the policy serve level for example if a policy is to satisfy the demand of 99 cases out of 100. stock out cost and overstocking cost are as follows- SERVICE LEVEL = STOCK OUT COST STOCK OUT COST + OVER STOCKING COST The estimation overstocking cost is fairly simple. 5. the difference between the cost of items and its salvaged value should be considered while computing the overstocking cost. It can be concluded that if the stock out cost is very high than Management should fix a higher service level. these means that the service level is 99% only 1 case out of 100 there will be stock out.used after a certain period of time.  INVENTORY MANAGEMENT TECHNIQUES:There are two basic questions relating to Inventory Management: 35 . the imputed value of stock out can be found out. SERVICE LEVEL:Under stocking and overstocking cost are related to each other through the concept of service level. there is no delay in placing and receiving orders 4 ) There are only two distinguishable costs associated with inventory costs. The economic size of inventory would thus depend on trade-off between carrying costs and ordering costs. On the other hand if the firm maintains large inventory laves. there will be few orders placed and ordering costs will be relatively small but the carrying costs of inventories increases heavily. 6 ) The cost of carrying inventory is fixed percentage of the average value of inventory. 36 . 3 ) Inventory orders can be replenished immediately. is known. The second question arises because of uncertainty and is a problem of determining the reorder point. The ordering costs increase with the number of orders.  ECONOMIC ORDER QUANTITY (EOQ) MODEL:The basic Assumptions of EOQ model are: 1 ) The forecast usage/demand for a given period usually one year. ordering costs and carrying costs. 2 ) The usage/demand is even throughout the period. the higher the firm’s ordering costs. What should be the size of the order?  At what level should the order be placed? The first question relates to the problem of ordering Economic Order Quantity (EOQ) and is answered with an analysis of costs of maintaining certain level of inventories. thus the more frequently inventory is acquired. 5 ) The cost per order is constant regardless of the size of the order placed. C = carrying costs per unit. TC = QC + AO 2 Q In the equation. O = cost per order. Q= 2AO C 37 . The second term on the right hand side is the ordering costs.Given these assumptions. The total cost of ordering and carrying is minimized when. For determining the EOQ formula we shall use the following symbols: A = annual demand/usage. Given the above assumptions and symbols. Q = quantity ordered. obtained as the product of the number of orders and the cost per order. EOQ model ignores purchasing costs and stock out costs. the first term on the right hand side is the carrying cost. obtained as the product of average value of inventory holding and the carrying cost per unit. the total costs of ordering and carrying inventories are equal to. The formula may be illustrated with the help of the following data relating to Ace Company.000 C = carrying costs per unit = 25% of inventory value P = purchase price/unit = Rs.000 units O = ordering cost per order = Rs. because on an average a larger inventory level will be maintained and ordering costs decline with increase in order size because larger order size means a less number of orders. A = annual demand/usage/sales = 20. 3 EOQ = 2AO = 2 X 20.000 C 3 = 5.000 X 2. In figure costs –carrying costs and ordering costs and total costs – are plotted on vertical axis and horizontal axis is used to represent the order size. We note that total carrying cost increases as the order size increases.164 units  GRAPHICAL APPROACH OF EOQ MODEL:- The Economic Order Quantity can also be found graphically. 2. 12 X 25% = Rs. Figure illustrates the EOQ function. 12 Here carrying cost/unit in is = Rs. The behavior of total costs line is 38 . Total Cost C O S T Carrying Costs Ordering Cost Q* Ordering Size The EOQ occurs at the point Q* where the total cost is minimum. Thus the firm’s operating profit is maximized at point Q* It should be noted that the total costs of inventory are fairly intensive to moderate changes in order size.  QUANTITY DISCOUNT & ORDER QUANTITY:39 . which behave differently with order size. that there is an economic order range. The total costs decline in first instance. To determine this range. If the total costs do not change very significantly. not a point. It may be appropriate to say. but they start rising when the decrease in average ordering cost is more than offset by the increase in carrying costs.noticeable since it is a sum of the two types of costs. the firm can change EOQ within the range without any loss. therefore. the order size may be changed by some percentage and the impact on total costs may be studied. Many suppliers encourage their customers to place large orders by offering them quantity discount. 1 The firm is offered 0.5% (0. the firm will save on ordering costs. Thus. 37. if negative its order size would be equal to EOQ level. However.50 C = carrying cost per unit Rs. the firm’s order size should equal the quantity necessary to avail the discount. but will incur additional carrying costs.0005) or Rs.05 per unit quantity discount on order of 400 units or more. in addition to discount savings. This will reduce the number of orders and increase the average inventory holdings. assuming that the quantity discount does not exist. the firm will have to increase its order size more than the EOQ level to avail the quantity discount. With quantity discount. 0. If the net rerun is positive.50 1 = 300 units Now.200 X 37. 50 O = ordering cost per order Rs. First we will calculate EOQ. The net return is the difference between the resultant savings and additional carrying costs. Q* = C 2AO = 2 X 1. Let’s assume the following data for a firm: A = estimated annual demand 1200 units P = purchasing cost per unit Rs. the firm will save on the per unit purchase price. the net return should be calculated for deciding whether the order size should be increased from 300 to 400 units 40 . (400-300)] Since the net return is positive. Reorder point= Lead time X Average usage 41 . By certainty.50 – 50 = 287.A/Q’] – [C/2 (Q’ .005 X 50 X 1200] + 37.Q*)] = [0. To determine the reorder point under certainty. The reorder point is tat inventory level at which an order should be placed to replenish the inventory. reorder point is simply that inventory level which will be maintained for consumption during the lead time. we mean that usage and lead time do not fluctuate. Under such a situation.50[1200/300 – 1200/400] – [1/2 = 300 + 37.  REORDER POINT:Yet the answer should be sought to the second question. the firm should have an order quantity of 400 units.50 Rs. when to order? This is a problem of determining the reorder point. i. we should know: a) b) c) Lead time Average usage and EOQ Lead time is the time normally taken in replenishing inventory after the order has been placed.The net return is given by the following equation: = Discount savings + savings on ordering costs – additional carrying costs = [d X p X a] + O [A/Q* .e.  FUNCTIONAL STRATEGIES/ OBJECTIVES:a) Evolve and implement a scientific inventory control system to achieve optimization of inventory levels. control. b) Standardize and improve equipment design. c) Create and sustain computer culture. at the proper place and time at proper cost. It is therefore. Being a chemical processing industry. INVENTORY MANAGEMENT IN KRIBHCO:- The efficiency of any business activity depends upon having materials supplies. and equipments available in proper quantity with the proper quality. the inventory pattern in KRIBHCO is very vast and varied. Failure ay any of these points adds to the costs and decreases the profit. e) f) Develop alternate source of supply of materials. h) Preservation of materials to avoid damages/ deterioration during storage. reduce the inventory levels of such consumables. the purpose to lay down the best practices methods and strategies that are necessary to enable the materials department to carry out established policies uniformly which will not only help in reducing the material costs and working capital but also increase the productivity of the corporation. i) 42 d) Bring more common items under centralized procurement system to get better g) Annual rate contract with the approved vendors for regular supply of material to Improvement in purchase procedure for reduction in procurement lead-time. . Identification and development of vendors. It needs considerable expertise not only negotiating but also in the techniques of competition and studying of economic trends in respect of materials to be purchased in large quantity. introducing new materials and sources in the undertaking etc. To contribute towards standardization. variety reduction and value analysis programs. which significant that efficiency of any organization is contingent upon having the right material of right quality or right place in the right quantity at the right time and place. To contribute to the competitiveness of the end product. how much to buy. To contribute towards higher productivity. STORAGE CONTROL 3. WAREHOUSE ACCOUNTING A study in KRIBHCO was carried out taking into consideration the concept of total material control. when to buy.To study the inventory management the several of interview techniques depending on the situations were followed. 43 . What to buy.  OBJECTIVES OF PURCHASING:The objective of Inventory purchasing can be enumerated as follows. PURCHASE CONTROL:Purchasing is one of the basic functions of Inventory Management and forms a major part of it.      To Maintain Continuity of production. Every rupee saved by the good purchasing goes directly in to the profit for the simple reason is that it is not spent at all. where it buy. PURCHASE CONTROL 2. To buy for the best ultimate value not necessarily at the lowest initial price. It also involves creative functions such as development of new resources. 1. how much to pay and how much to stock are the fundamental of the Inventory control. Discussions were carried out with various personnel of the company to study the following 3 broad areas: 1. office stationery etc. To increase profits  EXISTING PURCHASE PROCEDURE IN KRIBHCO:To study the existing purchase system. loading and transportation of incoming/ outgoing materials.  Items for repairing and maintaining the capital items. handling.  Rate contractors for procurement of casual labors and for maintenance of plant and township buildings. structural.  Contract for running of canteen / guesthouse. electrical. 44 .  Contracts for hiring of vehicles. like plant and machinery. Mechanical. instrumentation. oils and lubricants. insulation and painting etc. office equipment.  Consumable items like tools.  Spare parts. the purchase procedure followed by the purchase department have been analyzed and evaluated on the basis of observation and discussions with concerned personnel of KRIBHCO is as follows: SCOPE: The scope of purchase in KRIBHCO includes the following:  Capital items.  Contract / agreement for clearing. furniture and fixtures etc.  Contract for construction of civil.  Raw materials and semi finished goods.  Rate contracts for procurement of laboratory, glass wares/ chemicals etc.  RESPONSIBILITY FOR PURCHASE FUNCTIONS:The purchase department issues the material manager (purchase all purchase orders/ contracts after the approval of the competent authority i.e. the material manager (purchase). The purchase function in other offices (like head office at NEW DELHI and its various branch offices) is headed by the single officer nominated / designated for that purpose. The indenters from various departments are issuing inquiries, inviting bids, entering into correspondence or negotiation with vendors/ contractors. All requisition for purpose is duly processed in accordance with procedure laid down, which is forwarded to purchase department for necessary action. 1. REGISTRATION / SELECTION OF SUITABLE VENDOR/S: Purchase department is responsible for developing a list approved vendors for various type of materials and service as per procedures, and advertisement is issued in all the leading newspapers inviting applications in the prescribed Performa for registration suppliers and contractors listing out of various types of purchase and service that are likely to be made during the next 3 to 5 years. The application received scrutinizes by a committee consisting of a representative from technical, finance and purchase departments (nominated by General Manager) and ascertained the resources, capacity and quality of workmanship of the vendor. The committee also calls the vendor and contractors for personnel discussions and clarifies the applications and obtains such other information as may be considered necessary by the committee. The list of approved vendors and contractors as to be updated at least every five years by issuing a press advertisement. 2. REQUISITION TO PURCHASE / WORK: The indenters from various departments are raising a requisition called the Material / Purchase Requisition for purchase n the prescribed Performa. It is ensured that the requisition for purchase is completed in all respect with regard to: 45 a) Descriptions of the material / equipments / scope of work. b) Material of construction / specification. c) Temperature / pressure/ standard if anywhere applicable. d) Quality and chit of measurements. e) Date when delivery of material / services required. f) Name of vendor in case the item is of proprietary nature. g) Estimated value and budget head. h) Whether item is a stock item/ non-stock item. The stores departments raise the requisition for purpose of stock items after the quality in stock has reached the recorder level as determined for the respective items. Such requisitions amongst other particular also indicates the minimum, maximum, and reorder level, the date on which last supply was received and average consummations per months since last purchases. The requisition for purchase of non-stock items is invariably routed through the stores departments, which indorses on the requisition the availability/non availability. In case item is available the quantity thereof is indicated on the purchase requisition and quality to be purchased is adjusted by the materials manager in consultation with the indenture. The requisition for purchase of capital items, award of civil works, erection contracts and repair to plant and machinery and equipment, handling and transportation of materials, repairs/service of equipments hiring of causal labors, selection of contractors for repair, maintenance, electrical instrumentation provision of after service and painting 46 jobs on schedule of rate valid for one year, is sent directly to the materials after same are approved by the authority. All requisition for purpose of materials or for award of work as described above is raised by respective departments. The department’s manager ensures the following particulars in the purchase requisitions. 1) Budget provisions. 2) The amount utilized up to the previous requisition. 3) The estimated value of the present requisitions, and 4) The balance available under the budgeted head after booking the present requisition. The requisition is submitted to the competent authority for approval of purchase/work after filling the above information. After the approval of requisition, the same is passed on to the purchase departments for inviting bids. 3. Inquiries/ Invitations to Bid: On receipt of the requisition from the various indenting departments, enquiries shall be issued by the purchase dept. as per the procedure detailed. Inquiries shall be issued in the prescribed proforma (e). The enquiry document should be suitably modified to conform to the equipments and materials proposed to be procured. It is important that the inquiry documents should describe in detail the description of the material, the technical specifications, and preferred delivery time, various general and special terms and conditions governing the purchase. Normally, bids shall be asked in two envelops in cash of the single sage bidding as below: Envelop 1 Envelop 2 Earnest Money Deposit Base Price Bid as per the Terms and Conditions of ITB and alternate price bid, if any. Alternate Bids shall be based on the alternative designs, materials, completion schedule, payment and other terms and conditions. The alternate bid shall be considered, 47 payment and other terms and conditions a list of deviations should be given separately. Single stage bidding should be issued only when subsequent changes in the specifications and terms and conditions are not expected. if required. 5 lakhs Nil 48 . first inviting technical and un-priced commercial proposal along with priced bid.e. if any. These shall be subject to clarifications and adjustments to be followed by the submission of revised priced bids in the second step. Time allowed for submission of bids and EMD to be Deposited: Normally three weeks time should be given to the vendors for submitting their bids however. in case of purchase is in which it may be undesirable or in impracticable to prepare complete technical specifications in advance or wherever it is deemed necessary.if not accompanied with base bid. the time limit for submission of bids may be increased with due consideration of the particular circumstances with the approval of the competent authority. The alternate bid shall be considered. completion schedule. 4. materials. Alternate Bids shall be based on the alternative designs. two stage bidding procedure shall be followed i. However. (i) For value of purchase up to Rs. if not accompanied with base bid. In this case bids shall be asked in three envelops as below: Envelop 1 Envelop 2 Envelop 3 Earnest Money Deposit Technical and commercial un-priced bid Base Price Bid as per the Terms and Conditions of ITB and alternate price bid. 5% of estimated value of purchase crore limited to Rs. The bids conforming to the specifications and lowest in value will be rated in the QCS as lowest (L-1). 5 crore estimated value but limited to maximum Rs. (10 lakh`s for proprietary) & up to Rs. the compatibility of equipment. include inter-alia the cost of transportation unto each unit along with other expenditures incidental to the transportation.1 crore Minimum Rs. 1 lakh. second lowest (L-2). and third lowest (L-3) etc.75% of & up to Rs. 5 0. the payment schedule. 1 which ever is less crores (iv) For value of purchase above Rs. the operating cost.10 lakhs. Quotation Comparison Statement (QCS): After the tender are opened a QCS of all the bids opened. 6. the availability of spare parts.(ii) For value o f purchase up to Rs. 0. 10 lakhs Nil for proprietary items (iii) For value of purchase up to Rs.2 lakh (v) For value of purchase exceeding Rs. will be finalized on the basis of the recommendations of the indenter and the purchase dept. However. the delivery or time of completion. shall be prepared by the purchase department. 1 crore. 5 lakh 1% of estimated value or Rs. by circulation of file. 10 lakh 5. the efficiency. in case of 49 . which may be taken into consideration. the purpose of bid evaluation is to determine the cost of each bid to the society in a manner that will permit a comparison of bids on the basis of their evaluated cost factor. after obtaining the concurrence of the Finance Dept. Tender Committee: All purchase orders whose individual value does not exceed Rs. will be done by a tender committee specifically constituted for the purpose in each case. The tender committee shall be constituted consisting members from following departments: a) Indenting department – department from where the requirement has come up and for which action is required to be taken. Particularly for case where the prices offered are substantial lower than the estimated cost and no proper reasons could be ascertained. full justification to be given in the recommendation.purchase order. whose individual value does not exceed Rs. must ensure the reasonability of the prices on which the order is proposed to be placed. which conforms. the amount of the performance security may be increased. whose individual value is above Rs. the recommending authority/ tender committee.10 lakhs. However. It leaves no room for malpractices or favoritism of employees i. b) Finance department c) Purchase department 7. nobody oblige any one 50 .  EVALUATION OF EXISTING PURCHASE SYSTEM OF KRIBHCO: The existing purchase procedure gives fair chances of competition to all the vendors. full justification for accepting other than the lowest bid shall be recorded in writing and approval of the competent authority will be obtained. Selection of Successful Bidder: Normally. as the case may be. the lowest bid. where the lowest bid even though it conforms to the specifications is not accepted.10 lakhs but are proposed to be procured stipulated hereunder: The reviews of QCS and selections of successful bidder in respect of all purchase orders.e. While forwarding the recommendations for award of work. In case the bid of the successful bidder is far from the estimated cost. to the specifications will be accepted. But there are shortcomings also. The procedure is based on democratic way of working.e. while suppliers lead time is about 2 to 3 months.out of way. Source of Supply 1. and analyzed its fact which indicates that by following the existing procedure. To find out the lead time five cases different items have been studied randomly. Good suggestions to improve efficiency are always considered. Purchase Price 5. Purchase Quality 4. stationery. Purchase Time 2. the administrative lead time is very long i. (2) Contract system should be followed to purchase stock items with approved vendors so that the continuity of supply can be maintained without following such long procedure and waste of time. It this case the economic order quantity should determined for each 51 . PURCHASE TIME: The purchase time indicates the lead-time i. Purchase Quantity 3. time taken to physically receive the material from the date of its indent. medicines. printing job etc. Various annual rate contract running contracts are entered for regular consumable items. This is reducing the repetitive job times and money of company. which are evaluated taking into consideration the five essentials of purchase functions are as follows: 1. SUGGESTIONS: (1) Approved vendor list should be maintained so that wastage of time to get vendor list approved every time could be avoided. necessary deviations are approved by competent authority so as to avoid stoppage of work. 5 to 7 months. chemicals. It is not very rigid. In time of urgency of requirement. like oil and lubricants.e. 3. trade papers and journals. ♦ Company is also incurring loses due to the depreciation in quantity. 2. Similarly time limit for recommendations and concurrence by technical department and finance department also is fixed. Although. 52 . Due to the existing system: ♦ Company is incurring cost of carrying inventory interest of capital rent etc. competent authority should be informed for necessary instructions. ♦ Company is also incurring avoidable expenditure such as holding and keeping of surplus material.item and a list of order per year with specific time limit should be given to contractors in advance. The determination of economic order quantity techniques has been discussed on succeeding pages. purchase department should keep itself informed of the price trends. PURCHASE PRICE: The price of each item is being compared with supplier’s quotations considering the quality of material to be supplied. PURCHASE QUANTITY AND QUALITY: It has been observed that the quantity of material is being purchased considering 6 to 12 months consumption that means no economic order quantity has been fixed for different types of material. It is suggested that before taking final decision economic order quantity should be determined for each item and order should be placed accordingly. minimum inventory levels. the limits for issuing inquiry should be fixed maximum to seven days. In case of delay beyond this time limit. fixing the maximum. (3) For non-stock items. extra expenditure on excess of materials required. financial losses due to fall in the price of materials. with the help of market reports. deteriorations in quality and obsolesce of materials during storage. out of which about 2400 items are ‘Stock Items’. preserving the materials in custody. Normally working hours of store is general shift hours.  Objectives of the Stores: To render materials. SOURCE OF SUPPLY: The selection of a particular supplier is made after inviting tenders from possible source of supply. The procurement action of stock items is initiated by store.report by purchase against and sales representative of the suppliers. published catalogue and price list. services to the organization by receiving and issuing the materials. The store is spread over in 2 lakhs sq. which indicates that right source is selected. in case of shut down. only thing taken in to consideration is to maintain cordial relations with suppliers. Of space. emergency service of stores is made available as requested by user department. The 53 .mtrs is covered area. STORAGE CONTROL:The Store has about 64. which are (a) Single tender (b) Limited tender (c) Open tender (d) Global tender The tender received are opened on the date and time stipulated and compared to select a final vendors. There are four types of tenders commonly used. considering quality. However. disposing the scrap/ surplus materials. delivery after sales services etc.mtrs.663 numbers of items. 4. out of which 12000 sq. issue to user department. and scraps item. Stores function is basically a service function. Material Exception Reports (MER). Identification of different training needs of stores personnel. For convenience in working. claims/ dispatch advice etc. Issue Vouchers/ Internal inspection of materials. budget. surplus item. Internal Stores Receipt Vouchers (ISRV). Stock Adjustment Vouchers (SAV). to arrange To keep materials safe custody. CUSTODY AND ISSUE SECTION: 54 . Vendor registration and evaluation for disposal. Implement stores related policies and functions. To initiate action for procurement of stock items. To maintain records/ files of all stores activities. issue of materials to user departments. the department is divided into three sections: A) Custody and Issue Section B) Receipt and Inspection Section C) Disposal Section A. Stores Issue Vouchers (ISIV). The main functions of the stores are: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) To receive all types (Stock and Non-Stock) materials.objective is achieved through following function. Coordinating with different sections for preparation of capital/revenue Coordinating with other departments for stores related activities. to keep in custody and Disposal of Non-moving item. 8. 9. Maintenances of accounting for records of each transaction. ‘Stock Verification’ reconciliation and updating of stock with management approval. It covers all material stocked by the KRIBHCO stores and all bulk and raw materials directly stored by the users. Reservation of stock for various schemes. Materials are issued against SIV. Direct receipt of bulk material like Steel. 3. 7. 10. This section is looking after following functions: 1. 4. Oil. format signed by authorized persons. Quantity on hand and location of the items will be noted on the SIV for Quantity to be issued is decided based on type of material required. 55 . Preservation of material during storage period. 1. 2. SIV and type of transaction will be checked. Preparation of MPRS for “Stock Control Items”. 6. Review and Fixing of “Stock level” for “Stock Control Item”. 5. Codify all items with 9 + 1 digit code structure. respective item. 2. Verification of “Material Statement” for the material issued against various “Work order”. It begins with the preparation of issue voucher and ends with their submission to accounts departments. Issue of material to the user department /contractor as and when required. Receiving and posting of “Accepted material against SRV and storing at proper location. 11. 4.  Procedure for Material Issue: The issue system relates to function of issue card and inventory control section of stores. 3.Main function of custody section is to codify the material. Cement and Stock items to avoid double handling. The materials are received in custody section through two sources mainly: .(a) If required material is “Stock Item”. it can be issued fully. Quantity mentioned in SRV/ ISRV is checked with quantity received. .From Receipt Section through SRV and. then quantity is issued is depending on stock available. RECEIPT AND INSPECTION SECTION: 56 .) 2. B. (b) If required material is “Non-stock item”. (c) If required material is of “Reserved material category” then entire reserved material can be issued to that particular department.  PROCEDURE SECTION: FOR RECEIVING THE ACCEPTED MATERIAL IN CUSTODY 1.From User Department through ISRV (Material once drawn from Stores and not consumed or replaced and repaired can be returned to custody till it is further required for consumption. The material is shifted to its location as per codes. 3. 2. 5. the same is recorded in SRV as ‘ACCEPTED’ by the person inspecting the material. 57 . as per PO Inspection Remark /Observation is recorded by the Inspection Authority on the SRV. Any recorded for communicating the same to the supplier and deviation will be 4.The consignment booked to the society is normally delivered to Stores ‘Receipt Section’ and procedure is following: 1. Such material is kept in the area marked as material awaiting inspection. 3. If the package is in sound condition. number of items and quantity delivered against the order with respect to the supplies. 6. material is shifted to area earmarked as “PENDING FOR INSPECTION”. At the time of receiving the Material. Indenter takes one copy of SRV with him. if the material is found of acceptable quality. SRV is raised for internal accounting indicating reference of the consignment. b) Accepted material is handed over to Custody Section for storage along with one copy of SRV. a clear receipt is given but in case of any observation for damage in packing specific remarks is endorsed on the Challan / Invoice or Lorry Receipt. Receipt Section will inform over telephone to the concerned user to The material will be offered for inspection to the concern user inspect the material department for conform the quantity and quality of items. The person delivering the material in receipt section should present the copy of Delivery Challan / Invoice or the supply with details of Purchase Order mention thereon. 7. c) Balance copies of SRV are distributed to finance and purchase Dept. The packing is opened and verified for the quantity received. the concerned staff will inspect the package for assessing the condition of package. a) After inspection. approved samples etc as stipulated in the purchase order. inspection plays an important role. Material Exception Report (MER) is prepared and sent to supplier with Indenter. Finance & Purchase Dept. and Purchase Dept. inspects the material.. a) If the material covered under KRIBHCO open policy. If the shortage or damage is noticed than MER is prepared giving details of shortage and damages.  INSPECTION: (a) Inspection by third party: 58 . drawings. After inspection if the materials rejected in part or full. b) If insurance was under the scope of supplier. User Dept... for further action. In exercising control on the quality of incoming materials. Materials purchased in India and abroad are inspected according to specifications. Given details of shortage/ damages and approximate value of claim and sent it to finance for submission to underwriter. 9.8. To inspect different types of materials following inspection methods are used. Finance & Account Department prepares monthly claim and submit to insurance company. After taking material into custody. prescribed tests. Stores sent MER copy to supplier giving reason of shortage / damage and rejections to enable him to lodge claim with underwriter. Stores prepare provisional claim. the staff of Store Dept. Proprietary nature of materials are accepted by either visual inspection or carrying necessary tests whenever required. IBR. Initiating appropriate disposal actions through tender. 2. C. Preparation of status report for surplus. Receive Surplus material. Scrape. Acceptance of material is based on the certificates and reports of these agencies.Such agencies are EIL cloyed register. public auction or through govt. (b) Inspection by indenting departments: At vendors premises during manufacturing of materials or before the dispatch of the same the concerned officers of indenters carry out such inspection. Wastages etc. phenol etc are accepted by visual inspection. cotton. agency hired for disposal on behalf of the company. 5. scrape material. 59 . 3. obsolete. DISPOSAL SECTION:  Function of Disposal SECTION: 1. (c) Materials test certificates: The material may be inspected and accepted based on the manufactures test certificates. 4. (d) Materials are inspected and accepted by carrying out chemical. Ensure that such materials are properly located and stored for fetching good price. fixing of reserve price for their disposal and obtaining management’s approval for their final disposal. Coordinating the activities of declaring items as surplus. electrical or mechanical test either of the project site or through the recognized lab as stipulated in the purchase order. etc. waste. (f) Materials are also accepted after ascertaining the quality as per samples on stipulated in the order. (e) Some materials like shop.  Procedure for disposal of scrap and Surplus Item: 1 Disposable material will be received from following sources. M/s. KRIBHCO will study the proposal and if everything is in order will get necessary approval from competent authority for disposal. physical delivery of material would be made. b) Scrap / Wastage From various user departments. Consolidated list of disposable item shall be prepared and forwarded to MSTC (Material Scrape Trading Corp. 5 6 7 M/s. Scrape: Material declared as not useable in plant. 2 3 4 The committee is constituted for review either for its alternative use or suggesting the disposable action with appropriate reserve price. 60 . MSTC only other receipts of such remittent. MSTC will invite the tender on our behalf as per their laid down procedure. a) Surplus inventory from Custody Section. Definitions: Non-moving Items: No transaction for last five years Surplus Items: Non-moving Items declared as not required in near future. MSTC who will issue Sale Order/ Delivery Order as per their procedure. M/s.). Our representative shall attend the tender opening. It shall be communicated to M/s. MSTC will prepare the QCS and recommend the vender to whom disposal to be made for KRIBHCO approval. Approval will be obtained from the competent authority for disposal. MSTC will forward a copy of SO / DO to KRIBHCO. This may be generated during various processes of plant. agency appointed for disposal of material. Remittance of sale proceeds will be done by M/s. selling the customers. Such wastes are: - Used/ spent oil from plants. Used/ spent automobile batteries from workshop.8 9 On execution or completion of SO. Used/ spent nickel and cadmium batteries from plan STORES FLOW DIAGRAM Receiving of materials Return of rejected materials to vendor & dispatch of material for repairing from vendors. having valid license/certificate from Pollution Control Board. will make disposal of hazardous wastes. statement of Accounts will be forwarded by Stores to Account Section for final settlement of Vendor’s account. Used/ spent catalysts from plants. In certain cases. contractors 61 & other units . For such type of disposal permission will be sought from PCB. on the basis of an average price. These can be valued at actual. current market price. A company may adopt a particular method of inventory valuation. at the last price paid.Receipt Section Return of material through ISRV -Inspection of material -SRV -Accepted material MPR for stock item to purchase Custody Section Handing over surplus Scrap from plants material for disposal to Disposal section Issue of material to User Department The preservation of material Disposal Section Delivery of material sold to a successful bidder through MSTC WAREHOUSE AND ACCOUNTING CONTROL: Inventories are the assets of a company and such as their valuation get reflected in the balance sheet and profit and loss account. but it is obligatory to follow it for a 62 . and so on. Only proper stores accounting procedure can successfully achieve control of inventory. purchase to inventory. A good system of stores accounting is found to be necessary for certain other purposes like: a) Preparation of accurate cost accounts b) Evaluation of purchase performance c) Working out important management ratio like sales to inventory. received. It starts with obtaining materials and ends with consumption.  INVENTORY CONTROL TECHNIQUES IN KRIBHCO: Inventory control is a term that refers to control of all factors that affecting the materials. handling charges etc. The entry for the quantity received is simple. Any changeover to a new method requires the approval of the board. The goods receipt voucher is priced from the appropriate invoice and the material account is debited in the stores ledger. consumption to inventory. inspected. and placed in the stores. inventory turnover etc. an entry is made about the purchase through a Goods Receipt Voucher. Inventories measured by money value usually constitute the major element in the working capital of manufacturing companies. carriage.minimum period of three years. but the entry for the value of a purchase is a problem because the value is the sum of a number of items like: a) b) c) d) e) Invoice price Sales tax/ octroi Excise duty/ custom duty Insurance Freight. d) Preparation of materials budget When a material is purchased. Material control is 63 . 5 x 9.e. Codification system 2. storage and consumption of materials so as to ensure minimum wastage. Mechanical equipments & spares EXAMPLE OF CHECK DIGIT GENERATION: Code no. Classification of Inventory 3. 6 x 9. by 9 i. = 72 + 27 + 18 + 9 + 54 + 63 + 72 + 45 + 9 64 MAIN GROUP NO. 01 to 49 50 to 63 64 to 80 81 to 99 . The tenth digit of code is being generated by their mainframe computer which a check digit to prevent duplication of code for a single item. To know the practical use of various inventory control techniques in KRIBHCO. Instrumentation equipments and spares 4. Electrical equipments and spares 3. Determination of Inventory levels. 1. 1 x 9. for the purpose of codification has been divided into 01 to 99 for the nine-digit codification system.a systematic check over procurement. 832167851 The computer shall multiply first each digit of above Code no. even flow of materials and minimum investment in inventory. CODIFICATION SYSTEM: KRIBHCO is using the nine-digit numerical code system. 3 x 9. This main group. 7 x 9. 8 x 9. 8 x 9. Determination of EOQ and 4. 1 x 9 And then sum of each digit shall be added i. Out of nine digit code. Following Inventory control techniques were studied and evaluated are: 1. General stores 2.e. 2 x 9. The same has been elaborated in details below: CATEGORY 1. the first two digits are used to codify the main group and remaining digit is used to codify other parameters / specifications in that main group. e. For example. the sequence of the main group remains unaltered. (b) Accurate and logical identification. other than general consumables. 2. inventories classified as stock items and non-stock items. In case of items. long description of the items and storing of the items under different name is avoided. 369/11 = 6 is remainder. main group and sub group by specification of materials. sub assembly parts construction size etc. i. The existing Codification System has the following Advantages: (a) Avoidance of duplication of a code due to multiple names. This system is basically designed for manual working but subsequently has been adapted on computer by some modification such as check digit addition etc. hence 11-6 = 5 shall be check digit. rating or unit. It takes in to consideration only the amount use of quantity not in 65 . (e) Efficient recording and accounting. then voltage. As can be seen the general layout of the digits are modified according to the requirements to explain the various characteristics of the items under each primary group in KRIBHCO system. The existing system keeps strict control on the item that is of recurring nature. and (f) Assure correct and efficient inspection. the main groups followed by make or type of equipment on plant. materials of construction and it is followed by size etc. However. The number of digits allotted to the groups in KRIBHCO codification system is flexible except in case of main group the utilizations of balance seven digits may slightly vary depending upon the requirements of materials in a particular main group. in general sub group follows consumable items. (d) Standardization of items. (c) Reduction in clerical work. CLASSIFICATION OF INVENTORY: The existing classification system is based on its use.e.= 369 11 will divide the total i. which neglects the benefit of selective control technique. obsolesce. Control kept on stock items a give equal weightage to all items. B and C categories as described in the following steps: 66 . In materials Management.   It considers the quantity used not the money value of the material used. Such as Inventory critically of items. Stock purchases order. which are of  recurring natures.  Techniques of ABC Classification: The techniques of classifying the items into A. this technique has been applied in areas needing selective control. inspection. It excludes from the control point of view the items that are high value in stock. This system has following shortcomings. storekeeper and billing verification. The classification gives importance to only those items. While for non-stock item low control is being kept. The technique tries to analyze the distribution of any characteristic by money value of importance in orders to determine its priority. two important methods are suggested as follow: (1) ABC classification (2) VED classification  ABC Classification:ABC classification is a basic analytical Management tools which enables top Management to direct their effort where the result will be maximum. Considering the practical use of classification techniques. This technique properly knocks as “ALWAYS BETTER CONTROL” has universal application in many areas of human endeavor. receipt of materials.value. Normally.classification has been done the following broad policy guidelines can be established in respect of each category. For control purpose.  PURPOSE OF ABC CLASSIFICATION: The object of carrying out ABC classification is to develop policy guidelines for selective control.(1) Classify the items of inventories. after experience and regular review of inventory. They exercise control over these classes as their relative value proportion in ABC classes to avail the benefits of selective control. when he is dealing with lakhs of store items. determining the expected use in units and the price per unit for each item. (3) Rank the items in accordance with the total value.B. (4) Compute the ratios (percentage) of number of units of each item to total units of all items and the ratio to total of each item to total value of all items.C. Concentrating on all items it is likely to have diffused effect irrespective of the priorities. It provides a sound basis on which to allocate resources and time of personnel with respect to their importance of the individual items. 67 . They don’t have the exact classification as we have in analysis. once A. in Kribhco the total inventory has been classified into ABC classes. But they know which item should have maximum attention and which should minimum. (5) Combine items on the basis of their relative value to form three categories A.  ADVANTAGE OF ABC CLASSIFICATION: This approach helps the material manager to exercise selective control and focus his attention only on a few items. B and C. giving first rank to the item with highest total value and so on. (2) Determining the total value of each item by multiplying the expected units by its unit’s price. Accounts forecast in Estimate based on past Rough data on present plan planning material planning 9.1 Sr. 7. No. 11. Strict value analysis As many sources Moderate value Minimum value analysis analysis as Two or more reliable Two reliable sources for sources each items estimate for possible for each item 8. 1. 3. Must be handled by senior officers Can be handled by Can be fully delegated middle Management 68 . 2. A-ITEMS Very strict control No safety stock Frequent ordering B-ITEMS Moderate control Low safety stock or Once in four months C-ITEMS Low control High safety stock Bulk ordering once in six months weekly deliveries 4. Minimization of waste Quarterly control over Annual obsolete and reviews over surplus surplus and obsolete surplus and obsolete items items Small group posting Group posting Decentralized purchasing (review every 15 days) 10.EXHIBIT 1. 5. Maximum Minimum clerical efforts reduce lead time 13. Weekly control Monthly reports Quarterly control reports Follow up and expediting exceptional cases statement Maximum follow up and Periodic follow up expediting 6. Individual posting Central purchasing and Combination storage purchasing efforts to Moderate 12. C types of item were listed out. & C items. and finally the cumulative percentage for the item count and cumulate annual usage value were computed. SR.949.C classifications The figures are as per April 2010.B. NO.SUGGESTED SYSTEM: The scientific method of ABC classification has been used in this study about which a brief introduction has been given in the previous pages.40 Abrasives 69 . (Exhibit 1.B. For this purpose first of all items were arranged by rupee annual consumption in descending sequence.OF ITEMS (UNITS) 62 DESCRIPTIONS VALUES CONSUMPTION (RS) 78. The sample of 29 items (material group wise) have been taken for the A. B. 1. MATERIAL GROUP NO 10 NO. starting at the top of the list running total of item by item rupee consumption value was computed.1) The main task here was to determine the demarcation line between A. All A. 6.B.414. 21. 14.B. 27.668. 8.36 1. 4. 7.68 35. 11 27 35 29 42 09 15 20 37 92 01 07 94 25 13 04 24 49 02 31 21 38 19 05 12 26 14 30 TOTAL 3713 1124 688 678 1854 286 623 553 277 5036 778 1077 5379 230 361 1202 3498 327 1196 300 1254 277 2895 37 86 230 75 1321 Tools and NDT Equipments Instruments General Fire Fighting and Safety Catalyst/Chemicals/Resins Stationary/Furniture Welding electrodes and spares Pipe and pipe fittings I.545.122.620.22 70 .B.74 1.708. 3. 17.04 4.443.846.92 9.461.642.857.902.336. 15.268.17 2. 12 13.02 5.825 6.665. Civil constructions Mobile equipments and Rollin Bearings Gasket/packing/o-ring Pumps & Ejectors Cable Metals(ferrous0 Fasteners Electrical/General Misc.878.27 2.524.36 9.437.66 9.83 343.75 3.598.2.81 7.417. 19.05 3.615.68 2.37 24.09 24.642.R.864.927.285.items 49 group CP/NG/oil mech-seal. 5.27 10.000. 939.98 1231.687. 28 29.061.571.508. 23.795.678.23 58. 24 25. 10.661.797.750.383.027.520.869.949.61 90. 18.Ve-belt Paints/oil/lube/gas Valves non I.10 327.387.10 1.838.R Flanges non-I.780.100. 16.222. 20.304.R Bags/bagging & containers/cot Pipe & pipe fittings Hardware(others fasteners) Elastomer/Plastic Cable(powers & control) Metals (non ferrous) Lab equipments 1726.761.90 4. 11.394.79 1.668. 22.666. 26.494.363.94 190.10 16. 9. 71 . 23 4.33 1.39 .85 0.76 0.91 1.81 – 58.36 0.70 2.00 3.43 0.50 0.54 – A Cumulative 05 .25 0.41 1.81 0.80 7.02 0.15 2.34 2.095 0.7 100 – C 86.69 2.78 0.31 17.21 10.27.44 0.96 1.30 – B 58.40 0.00 7.78 0.06 – 13.54 26.Main Group Item 20 92 01 94 13 24 02 21 19 33 29 38 12 14 30 10 11 27 35 42 09 15 37 07 25 04 49 31 72 % of Total Value Units 553 5036 778 5379 361 3498 1196 1254 2895 230 678 277 86 75 1321 62 3713 1124 688 1854 286 623 277 1077 230 1202 327 300 37 1. 92 20.56 2.86 – B .17 0.06 0.89 1.98 – 8.63 43.09 2.Main Group No 20 92 01 94 13 24 02 21 19 33 29 38 12 14 30 10 11 27 35 42 09 15 37 07 25 04 49 31 73 Units 553 5036 778 5379 361 3498 1196 1254 2895 230 678 277 86 75 1321 62 3713 1124 688 1854 286 623 277 1077 230 1202 327 300 % of Quantity 0.29 4.02 0.08 0.96 0.48 12.32 0.92 – A 29.16 0.55 0.99 2.20 0.94 0.16 0.08 Cumulative 8.23 0.47 0.77 0.1 0.25 0.46 2.13 0.17 1.34 – 20. 5 – 70. preparation 8. On the other hand.76 percent of the total value. item ‘C’ represents 70.30 percent of the investment Item ‘C’ representing merely 13.14 100 .C  Graphical Representation of ABC Analysis: 100 90 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Item “B” Percentage of Cost The tabular & graphic presentations indicate that item ‘‘forms a minimum.  VED CLASSIFICATION: 74 .86 percent of the total units and 86.7 percent of the investment.94 percent of the total units and 27.05 37 0. Items ‘A’ and ‘B’ jointly represent 29.7 percent of the total value item ‘B’ occupies 20.14 percent of the total units and 13.54 percent.92 percent of total units of all items but represents the higher value 58. the method of classification designed for one type of inventory will not be compatible for selective control of another type of inventory to overcome this draw back the VED classification is used. etc are given in this table: CLASSES A Items B Items C Items V Item E Item D Item Nil stock Very low stock Low stock Constant control & Moderate stock regular follow up Moderate stock High Stocks Moderate stock Moderate stock 75 . Some risk can be taken in the case of E (Essential) class of spares. BE. Spares are classified as vital. while the consumption of raw materials depends directly on the market demand of production while the demand for spare parts depends on the performance of the plant and machinery. ABC and VED classification can be a combined advantage. in order to control the stocking of spare parts. Moreover. It is essential that those in charge of the maintenance of the plant do by technical department or this classification. Stocking of D (Desirable) spares can be even done if the lead-time for their procurement is law. because their consumption pattern is different. CD. The control action for the class AV. This classification will be very useful to KRIBHCO if it is implemented. Therefore.The VED classification is applicable largely to spare parts. This implies that V (Vital) classes of spares have to be stocked adequately to ensure the operation of the pant. because by definition the non-availability of vital spares can cause havoc and stop the wheels of the organization. essential and desirable. Stocking of spare parts will be based on strategies different from those for raw materials. 1.. If the materials not available. fasteners. ESSENTIAL: LED TIME: FEW DAYS Item of regular production and easily available with manufacturer. DESIRABLE: LED TIME: FEW HOURS 76 . general bearings. If the materials not available than same may be production affected in future. Probability of high consequential looses. pipe fittings. Its substitute is not available. Only single manufacture. paints. high cost of item. Chemicals. valve. VITAL : LED TIME: FEW MONTHS Item of proprietary Nature. 3. welding materials. refectories etc.Usually. 2. than total production stopped at the time. emery papers. everything happens just-in-time. The term also describes lean manufacturing that is dependent upon JIT inventory systems (Term=JIT). Continues/ frequent requirement consumables. warehousing and several strategies for handling the potential supply chain uncertainties. however achieving it in practice is likely to be difficult. GI fittings. lab ware. general stationeries.  Just-In-Time Inventory: JIT. Just-in-time is easy to grasp conceptually. Conceptually there is no problem about this. If the materials not available. than same may production affected in future after long time. lubes. Small nuts bolt. marketing cloths etc. JIT is a process for optimizing manufacturing processes by eliminating all process waste including wasted steps..For the sales available from ready stock. expendables. Just-In-Time is a term usually thought of as describing inventory arriving or being produced just in time for the shipment or next process. and excess inventory. wasted material. 77 . Just-In-Time inventory systems depend upon logistics that include: transportation. hand gloves. Ready available in local market. The term is commonly referred to the concepts of Taiichi Ohno from the Toyota Motor Company in Japan regarding production. the sum of all cost of one type is exactly equal to the sum of all the cost of the other type. Thus quantity is often referred to as economic order quantity. The economic order quantity can be determined with the help of the following formula: Q= C Where. DETERMINATION OF EOQ:  What is Economic Order Quantity? Order quantity is defined as the quantity or its rupee equivalent for which fresh order of an Inventory item is placed. we will calculate the determination of EOQ: 78 . The decision regarding order quantity of various Inventory items is of vital importance in the Management of the Inventory item for which total of two types of cost opposing each other will be the minimum at this level. Purchase item and economic lot size for production item. A = Annual usage in units O = Order (buying) cost per order C = Carrying cost per unit 2AO  Determination of EOQ: As per the above formula. for the purchase. 7104674588000 year ended 31st March 2001.3 ------------------------ 79 . Rs.90+186305400) -----------------------= 7662999307091.40+7104674588000+497563468000. 497563468000.60574945690.450 x 12 = Rs. TRAVELING COST: Rs. SALARY OF PURCHASE DEPARTMENT: Rs.90 year ended 31st March 2001.525.525. 15.450/.40 year ended 31st March 2010.per month Therefore 15. 186305400 per year Total ordering cost = (60574945690. DETERMINATION OF CARRYING COST: a) Obsolescence b) Deterioration c) Taxes d) Nil Negligible Nil 1% average 18% 19% Insurance - e) Interest on capital Total carrying cost  DETERMINATION OF ORDERING COST: COMMUNICATION COST: Includes. telephone. STATIONERY COST: Rs. telex and Telegram cost and postage cost. preservation. general level of stock should be related to the sales and production policies of the company. 80 . Store keeping should contribute directly to profitability and be concerned with such matter as flow. so.7 = Rs. Two months usage (consumption) of material (stocks) taken into consideration by the KRIBHCO as a minimum stock level. as follows: ♦ MINIMUM STOCK LEVEL : This is the level at which any further demands upon the bill will necessary withdrawals from the reserve stock. There are various levels of stock. material handling. The minimum stock is converted to meet exceptional conditions of demand. lead time storage cost. 11377. acquisition cost. which are established by the KRIBHCO.Average ordering cost per order: 766299930709 673535838. In the same way that specification is related to technical needs.00  Determination of Inventory Levels: The Inventory level concept considers store keeping as profit intensive service to production. packaging and dispatches. The average time taken to convert an indent into an order is about 3-4 months for regular items and for new items it may vary from 4-5 months. the time taken to get the MPR approved and passed to Purchase department. KRIBHCO also appointed four export of the USAGE OF MATERIAL – STOCK IN THE USER DEPARTMENT. To justify these different kinds of level in December 1985 with the codification system. from the year 1989 these different types of stock levels are established.♦ MAXIMUM LEVEL : This is the level above which the stock should not be permitted to raise. KRIBHCO established Inventory cells. Based on their experience and consumption of material stock within the four years. time taken by supplier to ship after receipt of order. It should be regularly reviewed for paid moving items. Eight months usage (consumption) of material (stocks) taken into consideration by the KRIBHCO as a Reorder level. Eighteen months usage (consumption) of material (stocks) taken into consideration by the KRIBHCO as a maximum stock level.e. ♦ RE – ORDER LEVEL : The point at which the order has to be placed. ♦ LEAD TIME: It is a systematic study of the time taken in each element of activity involved in procurement of an item beginning from the need felt to the receipt of material for use i. time taken in transportation and time taken in receiving and inspection till it is finally available for use. The reorder level may not always be numerically equal to the economic order quantity. delivery times or variation are in trend. time taken between the receipt of MPR in Purchase to the date of placement of order. 81 . For fast factors such as change in demand. the average cost for inventory would be $1.25 loaves would be allocated to ending inventory (appears on the balance sheet).This method is quite straight forward. There are three inventory-costing methods that are widely used by both public and private companies: • First-In First-Out (FIFO) .125 per unit. • Last-In First-Out (LIFO) .This method assumes that the first unit making its way into inventory is the first sold. the COGS are $1 per loaf (recorded on the income statement) because that was the cost of each of the first loaves in inventory.25)]/400. FIFO states that if the bakery sold 200 loaves on Wednesday.25 each. income statement and statement of cash flow. • Average Cost . and 200 more on Tuesday at $1. 82 .This method assumes that the last unit making its way into inventory is sold first. The older inventory. is left over at the end of the accounting period. therefore. For example. let's say that a bakery produces 200 loaves of bread on Monday at a cost of $1 each.  METHODS OF EVALUATION:How Do We Value Inventory? The accounting method that a company decides to use to determine the costs of inventory can directly impact the balance sheet. The $1. it takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory.25 per loaf to COGS while the remaining $1 loaves would be used to calculate the value of inventory at the end of the period. the same bakery would assign $1. In our bakery example. For the 200 loaves sold on Wednesday. calculated as [(200 x $1) + (200 x $1. C H A P T E R – VI: SUGGESTIONS AND CONCLUSIONS 83 . which reduces warehousing cost. they should introduce other widely used classification systems also so as to have greater control over inventories like VED analysis and FSN analysis.  As I have visited the dockyard.g. main group for newly invented spare part.  First taking into consideration the purchase control of KRIBHCO. E. if the necessity arises. and obsolete items are being stored. considering demand of stores and spare parts.  Optimum planning should be maintained in transportation to reduce storage of finished product (Urea).SUGGESTIONS Considering the entire situation discussed above following points should be taken in to consideration for the effective Inventory Management. They should modify the system as such that it can accommodate more main group.  The investment in stores and spare parts Inventory should be kept as law as possible. it is necessary for them to reduce the disposable items and should make cash out of it as soon as possible. 84 . they should introduce Vender Performance Rating System for vendor development and to spot out good reliable source of supply.  The production planning should be done according to the demand so that there should not be over stock during off-season and stock out during the season. wastages.  Their codification system is really good but as far as main group is concerned.  Reduction in material handling as far as possible.  In addition to ABC classification. They have to reduce this to minimize the ordering cost.  I found the extra staff in purchase department. where the most of the scrape. The inventory of stores and spares has more than 6000 items and are being managed by material/purchase department. Codification helps in identification of an item and in standardization.CONCLUSIONS The inventory of Kribhco is about 6-7% of the total assets. Hence it is requires the due attention. 85 . These items are costly and having one or two sources of supply. The management is now more focused on reducing the level of mechanical pares. Because of the use of codification and computerization the management of these inventories is carried out very well. As they have already established standards of levels for some items and for other items they have like a fluctuating level system supported by computer technology. which are proprietary type of items in most of the cases. where as computerization assists in carrying out various inventory related analysis and identifying non-moving items. which updates levels whenever new price for a material is entered into system. As stated earlier the main inventory of KRIBHCO is Mechanical Spares. That is why it can be said that they have scientific ways to manage inventory properly with the help of scientific inventory management control system. C H A P T E R – VII: BIBLIOGRAPHY 86 . Pandey. Vikash Publishing House Project Guidelines:FINANCIAL Reports of KRIBHCO.net www. I.P. Knowledge and guidance of Mr. Ninth Edition.kribhcosurat.Soni 87 .com www.com BOOKS:Financial Management. Year 2007-2008.BIBLIOGRAPHY WEBSITES:www.G.Google.kribhco. M. 2008 – 2009. Annexure 88 . 4 Capital Items a) General Manager 2. 2 lacs in each case Full power Upto Rs.3 single Tender 89 Extend of Powers Remarks Full power Upto Rs. 50000/.2 Non stock or restricted issue items a) General Manager b) Departmental Manager 1. Full powers Full powers Full power for item up to Rs. Calling for tender 2.in each cases. 50000/.in each cases.1 Open tender a) General Manager b) Material Manager 2. Full powers Full power for items valuing up to Rs.1 Normal stores stock items a) General Manager b) Departmental Manager 1.2 Limited Tender a) General Manager b) Material manager 2.ANNEXURES ANNEXURE –1 SCHEDULE OF SUB-DELEGATION OF FINANCIAL POWERS: Nature of Indents (1) Approval of indents 1. 1 lac .3 Service Contracts a) General Manager b) Departmental Manager 1. 2 lac in each case. Full power Rs. 25000/.4Proprietary items a) b) c) General Manager Material Manager Suptd. (Purchase) Full power Upto Rs.25000/. 2 lacs in each case Upto Rs.in each case Upto Rs. 50000/.Acceptance of tender 3.in each cases Purchase office 3. Material Manager 3.in each case Up to Rs.2 lack in each case Upto Rs.a) General Manager b) Material Manager 3. General Manager b. 50000/. 10 lack in each case Upto Rs.in each case Up to Rs. Material Manager c. 10 lacs reasons to be recorded for not calling tender Up to Rs.in each case Upto Rs.3 single tender a.2 Limited tender a) General Manager b) Materials Manager (i) (ii) c) Normal stock items Non-stock items Supdt. (purchase) Upto Rs.in each cases Upto Rs.10000/.1 Opening tender a) General Manager b) Material Manager 3. General Manager 5.10000/. Suptd.in each case Full power for purchase of Naphtha . General Manager b. 50000/. a.in each case 4. 10 Lac in each case Upto Rs. Purchase control at controlled rates and analyzed through public sector agencies including purchase against DGS & D. 50000/. 10 lacs in each case Upto Rs. (Purchase) d. 25000/. Emergency Purchase through personal inquiry 90 Up to Rs.in each cases Upto Rs. Amendment to purchase order & Contract 11. General Manager Upto Rs. Dy. Services) 9.in each case provided total sanction in the year would not exceed is 10000/11. General Manager Excess up to 20% of budget allotment for the individual items provided and approved budget main head is not exceed by more than 5% 10. Manager (Maintenance) 8. 4000/.1 where price is effected a. Material Manager 12.on each case. a.D. These are subject to the overall. In absences of provision in the annual budget a) General manager For items of petty nature Rs. Rs.2500/. Nature of power a. General Manager Full power Full power + 10% original contact/purchase order price or Rs.a. Where price is effected a. 1 lac whichever is more. Cash Purchase a. 500/.in each case b. Manager 7. Increased in purchases order/contract . General Manager 6. (Mech. General Manager b. 91 Full power total not to exceed Rs. Limits given in 3 above. Supdt.in each case.per year for vehicle. 1 lac in each case Rs. Purchase Commitments (in excess of provision in the annual budget) a. Total not to exceed 3:5 lacs per year Rs. 1000/. 500/. All such cases to be reported to M. Repair to Staff Cars/Jeeps/Buses/Ambulanc e/Truck etc. in each case. Materials Manager Supdt. Signing of Purchase Orders/Contract a. ANNEXURE – 2 KRISHAK BHARTI CO-OPERATIVE LIMITED. Material Manager +5% of the original contract (Purchase order for Rs. 50000/. General Manager Full powers within his delegated powers and above Rs. HAZIRA PROJECT SURAT LIST OF PRIMARY GROUPS 92 .D.value to be b. 1 lac with the approval of M. 5000/whichever is more) allowed Only this will not cause the approval budget main head to exceed by 5% 13. b. (Purchase) purchase officer Upto Rs. B. fuel and gases Round rolled bars Insulation and refractory Fire fighting & safety Flood Materials Civil construction materials Bag . Flanges I. house) Metal (Ferrous) Metal (Non ferrous) Pipe and Pipe fittings I.(I & II DIGIT) Primary Group 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 93 Description Bearing Coupling and mechanical seal ( V Belt) Test Fasteners Hardware (other Fastners) Testing Group For Closing Purpose Gaskets and packing Welding material and equipment Abrasives Tools & NDT Equipments Elastomer/Plastic (inc.R. Values (other than control solenoid/relief) IBR Tubes IBR Pipe and Pipe fitting non IBR Flanges non IBR Valves (other than control solenoid) non IBR Tubes non IBR Electrical general stores (other than cable) Cable (power and control) Instrument General stores Mechanical items Chemical. oil. lubricants. bagging materials & containers Thread Liveries & protective clothing Furniture furnishing canteen horticulture & stationary Medicine/medical items Project/new scheme items Regularized items Consumable stores(other than those included elsewhere) .B.R. catalyst and water treatment resins Lab equipments Pints. C Industrial Heaters Switch gear Telephone exchange items Transformer DCS/PLC/PC/DATA/OGR Analyzers Pneumatic instruments Control valve Flow instruments Temperature instruments Pressure instruments Level instruments Vibration instruments Elect.C. turbines. Receiving stations Electronic instruments Transmitters Field Instruments Instrument electronics Testing equipment Relief value / require disc. Ups Motors M. equipment (other than motors) Electrical instruments & relays Motor Operated Value Generator Flame proof LGT &ACC Battery charges . Weighing inst. Compressors.50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 D.C. fans & blowers Conveyors & evaluation Exchangers Engines Furnace & boilers Bio – Fertilizers Equipments & PIPE Gear box (other than compressor gears) Capital Items Material handling equipments (other than conveyors & elevator) Mobile equipments & rolling stock Pumps & ejectors Surplus items of coal handling Vessels & tanks VLVS & Pipe Fittings Coal Mill Surplus Special equipment 94 . 95 .