A SUMMER TRAINING REPORT ON “INVENTORY MANAGEMENT” FOR GUJARAT NARMADA VALLEY FERTILIZER COMPANY LIMITED, BHARUCH SUBMITTED TO ANAND INSTITUTE OF MANAGEMENTIN PARTIAL FULLFILLMENT OF THE REQUIREMENT OF THE AWARDS FOR THE DEGREE OF MASTER OF BUSINESS ADMNISTRATION UNDER THE GUIDANCE OF NISHI SANGWAN (Faculty, A.I.M) PRESENTED BY: (JAYNAND PATALIA) EXAM SEAT NO.: M-20063 MBA- SEMESTER ANAND INSTITUTE OF MANANGEMENT M.B.A. PROGRAMME OPP. TOWNHALL, NR. GRID, ANAND JUNE 2011
TABLE OF CONTENTSPrefaceAcknowledgementDeclarationExecutive SummarySR. NO. PARTICULAR PAGE NO. PART – I GENERAL INFORMATION1. INTRODUCTION 12. FUNCTIONAL DEPARTMENTS 2 PRODUCTION DEPARTMENT HUMANRESOURCE DEPARTMENT FINANCE DEPARTMENT MARKETING DEPARTMENT INFORMATION TECHNOLOGY PART – II INDUSTRY INFORMATION3. RESEARCH METHODOLOGY 5 SWOT ANALYSIS 64. INDUSTRY PROFILE 75. COMPANY PROFILE 126. THEORIES OF INVENTORY MANAGEMENT 397. DATA INTERPRETATION AND ANALYSIS 598. LIMITATIONS OF STUDY 709. FINDINGS 7110. CONCLUSIONS 72 LIST OF GRAPHSSr. No. PARTICULARS TABLE NO. PAGE NO.
1 RAW MATERIAL CONVERSION 1 602 WORK-IN-PROCESS CONVERSION 2 623 FINISHED GOODS CONVERSION 3 634 INVENTORY CONVERSION 4 645 TOTAL INVENTORY INVESTMENT 5 656 INV ENTORY TURNOVER RATIO 6 667 RAW MATERIAL TURNOVER RATIO 7 678 WORK-IN-PROCESS TURNOVER 8 68 RATIO9 FINISHED GOODS TRUNOVER 9 69 RATIO LIST OF DIAGRAMSSr. No. PARTICULAR DIAGRAM NO. PAGE NO.1 SHARE HOLDING PATTERNS 1 14 OF GNFC LTD.2 DIFFERENT BANKS OF GNFC 2 28
3 DIFFERENT INSURANCE 3 38 COMPANY OF GNFC4 BIFURCATION OF INVENTORY 4 465 ABC ANALYSIS OF INVENTORY 5 506 EOQ MODEL 6 507 NET OPERATING CYCLE 7 61 PREFACE “Experience is the best teacher.” This saying plays a guiding line inour lives and also in project reports that are an integral part of the MBAprogrammed in Gujarat University.
Today’s age is an age of management. Management is the backboneof any organization or any activity done. The real success of management liesin applying the professional management techniques an all managerialactivities. Hence, to attain this objective and to have the outlook of all intricaciesof corporate world I have undertaken the Summer Training at “GUJARATNARMADA VALLEY FERTILIZERS COMPANY LTD.” It’s all about“INVENTORY MANAGEMENT AND ITS ANALYSIS.” ACKNOWLEDGEMENT Industrial training is the phase of the activity during my study in which Iam expected to expand my creative thinking ability and to get the training of
how to work in the industry and how all works are undertaken in the industry.It was a great pleasure working on analysis of inventory management. The presentation of this report gives me a feeling of fulfillment. As thefinal frontier towards achieving a master of business administration degree,the activity of going through industrial orientation has bridged the gapbetween the academics and practical real life work for me. It has prepared meto apply myself better to become good manager. Normally, it require a lot ofpeople support to complete this opportunity to acknowledge their support forme. First of all I am thankful to Mr. N.K. Patadia (A.G.M. HRD) GNFC forallowing me to take training under his shelter in the company. I am thankful to Mr. A.K. Trivedi (G.M. Finance Department), Mr.N.A. Modi (Senior Manager, Store Account) and Mr. B.S. Patel for guidingme through out the project development. I would also like to thank Mr. D.C.Jadeja and Mr. D.R. Panchal and co-worker who have given their precioustime to us and help us a lot in this project. I even show my gratitude towards Dr. N.N. Patel, Director, AIM,ANAND and my faculty guide Miss Nishi Sangwan without whose supportmy project would not be possible to complete.I have been able to prepare my report successfully and I acknowledge aspecial thanks to all those people without whose support it was impossible forme to make the project report. DECLARATION
1.EXECUTIVE SUMMARY During the Summer Training at “Gujarat Narmada Valley FertilizersCompany Ltd”. I have tried to cover the glimpse of overall working of the
organization. G.N.F.C. is a large fertilizer and petrochemical companyestablished on 10th May, 1976. G.N.F.C. has two aims like to do social workfor the society and to make India a strong economical country. This report talks about the company first, and then further it talks about the financial aspects of the company. Afterward it proceeds towards the theoretical aspects of the project report and about various research methods used for the data collection. Further is discusses about the various aspects and techniques used in inventory management. Further it talks about various data analysis and interpretation of various inventories ratio. Lastly at the end of the report it talks about various strengths and weakness and the limitations of the project report. GNFC wants to give full services as well as education about crop, soil, seeds, and fertilizer etc. to the farmers.
A PROJECT REPORT ON GENERAL INFORMATION ABOUT THE COMPANY IN THE AREA OF FINANCE FORGUJARAT NARMADA VALLEY FERTILIZERS COMPANY LTD. BHARUCH SUBMITTED TO ANAND INSTITUTE OF MANAGEMENT M.B.A. PROGRAMME PRESENTED BY JAYNAND PATALIA M.B.A. – SEMESTER-II
INTRODUCTION Agriculture the backbone of Indian Economy still holds its relativeimportance for more than a billion peoples.India is primarily an agriculturebased economy. The agricultural sector and its other associated spheresprovide employment to a large section of the countrys population. Fertilizer in the agricultural process is an important area of concern.Fertilizer industry in India has succeeded in meeting the demand of allchemical fertilizers in the recent years. The Fertilizer Industry in India startedits first manufacturing unit of Single Super Phosphate (SSP) in Ranipet nearChennai with a capacity of 6000 MT a year. The company has varied products and diversification as well as growthstrategy. It has been basic to India’s progress not only because of itsinception immediately after independence. But on one hand it has helped inproduction of strong needed fertilizer as well as the chemical products andson other hand has provided employment to many people. Such employmentis not only limited to company’s own premises but all other industries whosegrowth has been fostered with development of this fertilizers and chemicalcompany are benefited through if. 1
Production Department GNFC has drawn on the worlds leading technologies and systems for its various production culmination of enterprise and initiative, resourcefulness and resolve, technology at GNFC common vision for continuous growth. GNFC has always shown a dedication to standards of production and environment safeguards, qualified research acumen, and 100% capacity utilisation for more than two decades. Human Resource Department 2
Finance Department G.N.F.C has a very active finance department, which looks for finance management of company. Division of work plays an important role in every organization for smooth working. Financial management is that managerial activity which is concern with the planning and controlling of the company’s financial resources so finance is life blood for every organization, without efficient financial management, company can’t survive for long time. Marketing Department GNFC Regional Offices Karnal Vadodara Meerut Surat Agra Ratlam Jodhpur Indore Udaipur Raipur Mehsana Nasik Bhavnagar Chennai Rajkot Kochi 3 Information Technology
(n)Code Solutions - An IT Division of GNFC(n)Code Solutions offers Digital Certificates that can integrate withapplications such as emails, workflow, enterprise wide applications, or secureVPNs. The Digital Certificates can be used by individuals, corporate andgovernments to secure online B2B/B2C applications and other onlinetransactions. It has promoted a portal called www.nprocure.com offering end-to-end electronic procurement services provider. (n)Code also designs andbuilds world class data center infrastructures.(n)Code also offers a wide range of Security Services which include ManagedIT Services & Secure Infrastructure design & building Services. 4 RESEARCH METHODOLOGY
Study or Research Objectives: The main objectives of study: a. To learn how the company keeps all the data of inventory perfectly. b. To study how finance department of the company work. c. To find out the composition of inventory. d. To study the various inventory ratio. e. To analyze the inventory management techniques used in the company. f. To study the Inventory Control Techniques of the company. Methods of Data Collection: The data is collected from the respected persons of the company. The communication was informal in nature. i. Secondary Data: The data was analyzed from the balance sheet, various tables, graphs, charts, referred some of the reports and other companies report. Data Analysis Techniques: For the purpose of analysis of the data and the report I have kept in mind the objective and analyzed each and every data I got at each stage of the report. I have used many tools for analyzing the data and the different ratios used for it are as follows: i. Total investment in inventory ratio. ii. Total inventory to current ratio. iii. Raw materials turnover ratio. iv. Work in process turnover ratio v. Finished goods turnover ratio. 5 SWOT Analysis
It focuses on the company’s financial as well as overall performance and future. STRENGTHS • Well organized structure of inventory management with high productivity and economic cost. • Well defined policies and innovative plans with cost reduction by its excellent human resources. • Good link of raw materials requirement planning and monitoring with annual and monthly requirement plan. • Environment consciousness. WEAKNESS • Non moving inventory items are in huge quantity. • Due to regulated environment in the fertilizer sector, there is a lack of pricing in fertilizers business of GNFC. • Disposal activity results are not satisfactory. OPPORTUNITIES • Nice chance of converting all fertilizers plant into gas producing unit. As government is allowing subsidy on these plants. • Scope of reduction in energy consumption by way of implementing revamp scheme. THREATS • Few plants are in operation for more than twenty year and may also require replacement of high value equipment and higher maintenance expenditures. • Entry of new competitors in the same field of business. • Higher competitive market for IT products and service. 6 INDUSTRY PROFILE
Introduction: Fertilizers sector is a very crucial for the Indian economy because itprovides a very important input to agriculture. The fertilizer industry in Indiahas played a pivotal role in achieving self-sufficiency in food grains as well asin rapid and sustained agriculture growth. India is the third largest proceduresand consumer of fertilizer in the world after China and the United States. Agriculture, which accounts for one fifth of GDP, provides sustenanceto two-thirds of the population. Besides, it provides crucial backward andforward linkages to the rest of the economy. Successive five-year plans havelaid stress on self-sufficiency and self-reliance in food grains production andconcentrated efforts in this direction have resulted in substantial increase inagriculture production and productivity. This is clear from the fact that from avery modest level of 52 million MT in 1951-52, food grains production rose toabove 208.6 million MT in 2005-06. Keeping in view the vital role played by chemical fertilizers in thesuccess of India’s green revolution and consequent self-reliance in food grainproduction, the Government of India has been consistently pursuing policiesconductive to increased availability and consumption of fertilizers in thecountry. As a result, the annual consumption of fertilizers, in nutrient terms( N,P & K), has increased from 0.7 LMT in 1951-52 to 203.4 LMT in 2005-06,while per hectare consumption, which was less than 1 kg in 1951-52 hasrisen to the level of 104.5kg in 2005-06. 7
Growth in Fertilizer Industry: The Indian fertilizer industry has succeeded in meeting almost fully thedemand of all chemical fertilizers except for MOP. The industry had a veryhumble beginning in 1906, when the first manufacturing unit of Single SuperPhosphate (SSP) was set up in Ranipet near Chennai with an annual capacityof 6000 MT. The Fertilizer & Chemicals Travancore of India Ltd. (FACT) atCochin in Kerala and the Fertilizers Corporation of India (FCI) in Sindri inBihar were the first large sized -fertilizer plants set up in the forties and fiftieswith a view to establish an industrial base to achieve self-sufficiency infoodgrains. Subsequently, green revolution in the late sixties gave an impetusto the growth of fertilizer industry in India. The seventies and eighties thenwitnessed a significant addition to the fertilizer production capacity. The installed capacity as on 30.01.2003 has reached a level of 121.10lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT ofurea after reassessment of capacity) and 53.60 lakh MT of phosphaticnutrient, making India the 3rd largest fertilizer producer in the world. The rapidbuild-up of fertilizer production capacity in the country has been achieved as aresult of a favourable policy environment facilitating large investments in thepublic, co-operative and private sectors. Presently, there are 57 large sizedfertilizer plants in the country manufacturing a wide range of nitrogenous,phosphatic and complex fertilizers. Out of these, 29 unit produce urea, 20units produce DAP and complex fertilizers 13 plants manufacture AmmoniumSulphate (AS), Calcium Ammonium Nitrate (CAN) and other low analysisnitrogenous fertilizers. Besides, there are about 64 medium and small-scaleunits in operation producing SSP. 8
Importance of Fertilizer Industry: These coal based plants have, however, been closed by Government w.e.f. 1.4.2002 due to technical and financial non-viability. However, with natural gas becoming available from offshore Bombay High and South Basin, a number of gases based ammonia-urea plants have been set up since 1985. As the usage of gas increased and its available supply dwindled, a number of expansion projects came up in the last few years with duel feed facility using both naphtha and gas. Feasibility of making available Liquefied Natural Gas (LNG) to meet the demand of existing fertilizer plants and/or for their expansion projects, along with the possibility for utilizing newly discovered gas reserves, is also being explored by various fertilizer companies in India. In case of phosphates, the paucity of domestic raw material has been a constraint in the attainment of self-sufficiency in the country. Indigenous rock phosphate supplies meet only 5-10% of the total requirement of P2O5. A policy has therefore been adopted which involves a mix of three options, viz, domestic production based on indigenous/imported rock phosphate and imported sulphur; imported intermediates, viz. ammonia and phosphoric acid; and third, import of finished fertilizers. In the absence of commercially exploitable potash sources in the country, the entire demand of potassic fertilizers for direct application as well as for production of complex fertilizers is met through imports. Given the volatility in international market for fertilizers in general and urea in particular, marginal provision through imports could be used to the country’s strategic advantage. This is also desirable as the international market, especially in case of urea, is very sensitive to demand supply scenario. 9
Salient Features of Fertilizer Industry:• Fertilizer sector is very crucial to Indian economy, provides important input to agriculture sector. It is regulated by government policies administering the price of fertilizer and the production.• Urea production is energy intensive process.• Natural gas, Naphtha, LSL/fuel oil are used as feedstock for producing urea.• Cost of energy varies from 65% to 87% of production costs.• Specific energy consumption of sample plants covered under this study varies between 5.53 goal/MT of urea and 10.2 Goal/MT.• Majority of industry energy conscious and focuses on energy management. Over the years, the industry has improved its energy performance by bringing down the specific energy consumption and improving capacity utilization. 10
Fertilizer Industry Scenario in India: • Public Sector Industries: The fertilizer and Chemicals Travancore Ltd. (FACT) NATIONAL FERTILIZERS LIMITED (NFL) PARADEEP PHOSPHATES LIMITED (PPL) PYRITES, PHOSPHATES & CHEMICALS LTD. (PPCL) RASHTRIYA CHEMICALS & FERTILIZERS LIMITED (RCF) STEEL AUTHORITY OF INDIA LIMITED (SAIL) HINDUSTAN COPPER LIMITED (HCL) • Co-Operative Sector Industries: INDIAN FARMERS FERTILISER COOPERATIVE LIMITED (IFFCO) KRISHAK BHARATI COOPERATIVE LIMITED (KRIBHCO) • Private Sector Industries: There are 14 companies in private sector: Gujarat Narmada Valley Fertilizer Co. Ltd(GNFC) Hindustan Lever Ltd.(HLL) ICI Indian Ltd. Indo Gulf Fertilizers and Chemicals Corporation Ltd. Manglore Chemicals and Fertilizers Ltd.(MCFL) Southern Petro Chemicals Industries Corporation Ltd. Nagarjuna Fertilizers Chemicals Ltd.(NFCL) Deepak Fertilizers and Chemicals Indusry. Tutcorain Alkali Chemicals and Fertilizers Ltd. Gujarat State Fertilizers Company(GSFC) Chambal Fertilizers and Petro Chemicals Ltd.(CFPCL) 11
COMPANY PROFILE GNFC at Glance: Gujarat Narmada Valley Fertilizers Company Ltd. (GNFC) is a joint sector enterprise promoted by the Government of Gujarat and the Gujarat State Fertilizer Company Ltd. (GSFC). It was set in 1976, at Bharuch located in Gujarat in an extremely prosperous industrial belt, GNFC draws on the resources of the natural wealth of the land as well as the industry rich heavens of the areas. GNFC started its manufacturing and marketing operation by setting up in 1982, one of the world’s largest single-steam ammonia-urea fertilizer complexes. Over the next few years, GNFC successfully commissioned different projects – in fields as diverse as chemicals, fertilizers and electronics. Since inception, GNFC has worked towards an extensive growth as a corporation. A growth which respects the environment and springs from the progressive vision of GNFC. General Information: Name: - Gujarat Narmada Valley Fertilizers Company Limited. Type: - Joint Sector Scale: - Large Scale Date of Established: - 10th May, 1976
Website: - www.gnfc.in Promoters: - Govt. of Gujarat GSFC 12 Board of Directors: - Board of Directors Shri A. K. Joti IAS Chairman Shri H. V. Patel IAS Managing Director Shri M. M. Srivastava IAS Director Shri D. J. Pandian IAS Director Shri R. K. Tripathy IAS Director Shri G. C. Murmu IAS Director Dr. TT Ram Mohan Director Shri D. C. Anjaria Director Dr. Ashok Shah Director Executive Directors Executive Director – IT Shri J. S. Kochar Executive Director and Shri K. C. Jatania Chief Finance Officer Bankers: - Bank of Baroda (Leader) State Bank of India Canara Bank State Bank of Saurashtra HDFC, ICICI
Head Office: - Bharuch Regional Offices: - Ahmedabad, Bhopal, Hyderabad, Jaipur, Lucknow, New Delhi, Pune, Mohali. 13 Historical Development GNFC started from 10th May, 1976. It promoted by government of Gujarat & GDFC Ltd. In 1981 largest shareholder promoted for the first project of GNFC Ltd. In 1985, major diversification by GNFC into Industrial chemical methanol, formic acid, acetic acid, nitric acid, electronic, telecommunications, information technology, etc. GNFC is a joint sector company. NCPL has recently been merged with GNFC. GNFC Believes G - Good, safety, Action/Approach.
N - Never be absent-minded, ever safety minded. F - Full proof safety wills fail-device. C - Cleaner place is safer place. Share Capital Pattern DIAGRAM NO: 1 Share Holding Pattern Of GNFC Public 38% Govt. of Guj. 21.38% GDFC 19.80% NRIs 2.10% FI & Banks 13.92% FIIs & GDR 4.80% 14 Awards and Achievements • National Safety Council, USA: Good Safety Performance.
• National Productivity Council: Best Productivity - First, Second & Third Prizes, Best Productivity for Nitrogenous Fertilizers.• Ministry of Labor, GOI: Good Safety Performance (Thrice).• Federation of Indian Chamber of Commerce & Industry (FICCI) : Best Environment Preservation & Pollution Control.• Indian Chemicals Manufacturers Association (ICMA): Environmental Control & Safety.• All India Organization of Employers: Outstanding Contribution in the field of Industrial Relations.• National Energy Conservation Award, Deptt. of Energy, Government of India : Energy Conservation Award, Second Prize.• Government of India: Award for Energy Conservation.• Jawaharlal Nehru Memorial National Award: Effective Energy Conservation Award.• National Suggestion Scheme: Two awards for the company, one for the employee.• Set up the worlds largest single stream, fuel oil based Ammonia - Urea plant.• All fertilizers under the brand name of Narmada, along with extensive support activities, have been well accepted by the countrys farmer community.• Indias largest producer of Formic Acid, Acetic acid and Methanol. 15• Indias only manufacturer of Glacial Acetic Acid through the cutting- edge Methanol route.• Indias largest single stream plant of Aniline.• The only manufacturer of Toluene Di-isocyanine in South East Asia.• Record capacity utilizations in all plants, defying the vintage through ingeniously innovative maintenance measures.• Development of the first indigenous, eco-friendly technology for H2S removal, CATSOL, a much awarded product of the Companys R&D labs.
Vision and Mission of GNFC: Vision statement: o To be a technology driven, environmentally responsible Joint Sector Company manufacturing Fertilizers, Commodity and Specialty Chemicals maintaining highest standards of operational excellence and innovation for creating sustainable value for all stakeholders. Mission Statement: We shall – o Be the leading provider of Chemicals and Agricultural inputs through adoption of State of the Art Technologies and Business Processes; o Have a firm commitment to quality, environment, health and safety; o Enrich human resources and promote teamwork, innovativeness and integrity; 16 o Achieve sustainable economic growth based on corporate excellence driven by ethical business practices, professionalism, dynamism and social responsibility. Fertilizers Division: GNFC started fertilizer manufacturing and marketing operations by setting up in 1982, one of the world’s largest single-stream ammonia-urea fertilizer complexes.
GNFC today is one of the leaders in fertilizer industry. The company is engaged in manufacturing and selling fertilizers such as Urea, Ammonium Nitro phosphate and Calcium Ammonium Nitrate under the umbrella NARMADA. GNFC has to its credit one of the largest Ammonia plant, a reference plant in the world of fuel oil based technology along with the worlds largest single stream Urea plant. Chemical Division: GNFC has kept pace with changing times and its vision is always focused on growth. Even as the Company was implementing its fertilizer complex, plans were underway for expansion and diversification in related areas. This resulted in the setting up of core chemical and petrochemical plants such as Methanol, Formic Acid, Nitric Acid and Acetic Acid. GNFC has kept pace with changing times and its vision is always focused on growth. Even as the Company was implementing its fertilizer complex, plans were underway for expansion and diversification in related areas. This resulted in the setting up of core chemical and petrochemical plants such as Methanol, Formic Acid, Nitric Acid and Acetic Acid. 17 Organizational Structure
GNFC is the largest company. So organization structure is very large. GNFC is the company having organization structure of line and staff type. There is a clear line of authority and responsibility, i.e. authority flows from top to bottom level. Raw Materials Used ⇒ Basic Raw Materials Used • Fuel Oil. • Natural Gas. • Rock Phosphate. ⇒ Utilities are Water. Coal. Electricity. ⇒ Catalysts are HCL. Aluminum. 18 ⇒ Fertilizers are Urea. Ammonium Nitro Phosphate. Calcium ammonium nitrate. ⇒ Chemicals are
Ammonia. Methanol. Acetic Acid. Formic Acid. Methyl formate. Weak Nitric Acid. Concentrated Nitrate Melt. Fertilizer Product 1. UREA[NARMADA Urea] Technology: Snamprogetti-Italy. Capacity: 6, 36,000 MTA. • Uses Narmada Urea contains 46% nitrogen which is readily available to plants. The granules of Narmada Urea are white, uniform in size and free flowing which ensures even distribution in the soil. Narmada Urea contains less than 1% biuret, making it convenient for foliar application on the canopy of the plant. It is equally effective for all kind of soils and crops. 19 • Packaging and supply 50 kg HDPE bags. Supply through rail or road.
2. Calcium Ammonium Nitrate Technology: UHDE – Germany Capacity: 1, 42,500 MTA• Uses Narmada CAN granules are white in colour and are free flowing, which ensures easy uniform distribution. Narmada CAN contains 25 % double power N (half in ammoniac and half in nitrate form). Narmada CAN also contains 8.1% calcium- an essential secondary nutrient for normal growth of plants. Narmada CAN is excellent fertilizer for entire upland crops. Being neutral in reaction, continuous use of Narmada CAN does not create any acidity and alkalinity in the soil and soil productivity is maintained on sustained basis.• Packaging and supply 50 kg HDPE bags with double packing Supply through rail or road.3. Ammonium Nitro phosphate: Technology: BASF – Germany Capacity: 1,42,500 MTA
20• Uses Narmada phos granules are uniform, grey in colour and free flowing. Therefore are easy to apply uniformly in the soil. Narmada Phos contains 20% N and 20% P2O5 available to plants. This ensures balanced fertilization for basal application at sowing time. In addition to N and P2O5, Narmada Phos contains calcium and micronutrients which are essential for the normal growth of the plant.• Packaging and supply 50 kg HDPE bags with double packing. GNFC is the first fertilizer company to provide double packing. Supply through rail or road.4. Diammonium Phosphate• Uses It contains 18% N and 46% P2O5. It is a very good fertilizer for basal application and more suitable for crops where recommendation of P2O5 is more than N. Being granular it ensures uniform distribution in the soil.5. Single Super Phosphate
• Uses It is widely used in most of the crops. Used at the time of sowing as basal application. • Packaging and supply: 50 kg HDPE bags Supply through rail or road. 21 Industrial Product 1. Methanol Capacity: 150000 MATS. Technology: Low Pressure, Low Temperature Technology from ICI, UK. Uses: supplied in tanker loads. Ex-GNFC, Bharuch. 2. Aniline Capacity: 40000 MTPA Technology: The technology for Aniline has been supplied by DuPont, USA. Packing: In Stainless Steel Tankers. In 30kgs. Uses: acetic anhydride, Vinyl Acetate Monomer (VAM) Purified Terephthalic Acid (PTA) .
3. Formic acid Capacity: 10000 MTA. Technology: The Technology for Formic Acid Plant has been supplied by Kemira OY, Finland. GNFC produces high quality Formic Acid through Methyl Formate Route. Packing: Formic Acid is available in 35 kg (net) HDPE carboys and in Stainless Steel tankers. Available in 35 kg HDPE carboys and 250 kg HDPE drums. Uses: A coagulant for obtaining rubber from latex, fixing of dyes in leather Industry Preservation of silage and grams. 224. Acetic acid Capacity: 100000 MTPA (approx) Technology: British Petroleum’s Technology. Packing: In Stainless Steel tankers. In 30kg. HDPE Carboys. Uses: acetic anhydride, Vinyl Acetate Monomer (VAM) Purified Terephthalic Acid (PTA).
5. Methyl Formate: Capacity: 3000 MTPA Technology: By Kemira OY, Finland. Packing: In 200 Litres drums with epoxy lining or in suitable road tanker. Uses: Used as a Fumigant and larvicide’s for tobacco, used in organic Synthesis and in Formulation of Synthetic Flavours.6. Weak Nitric Acid: Capacity: 247500 MTPA Technology: UHDE Germany. Uses: Ammonium Nitrate and other explosive, Sodium Nitrate, Potassium Nitrate, Calcium Nitrate and other Nitro Derivatives.7. Weak Nitric Acid: Capacity: 70000 MTPA. Technology: UHDE Germany. Packing: Stainless Steel Tankers.
Uses: Widely used in the manufacturer of fertilizers like calcium, Ammonium Nitrate, Ammonium Nitrate Phosphate, explosives, Pharmaceuticals, as Absorbent. 23 Work for Society: Being constantly aware of social obligations. GNFC has provided for its employees a modern township, set up English and Gujarati Medium Schools, A 32 Bed hospital with visiting consultants in various disciplines. GNFC gives full fledged operation for family schemes and appropriate incentives. GNFC has adopted a few villages under the ‘GOKUL GRAM YOJANA’ set up the government of Gujarat. A sports complex has been construction with modern facilities for various indoor and outdoor games. Production Performance of GNFC Plants TABLE NO: 1 Production Performance of GNFC Plants For the Year 2010-11 PLANTS PRODUCTION CAPACITY UTILIZATION (%) Ammonia 474868 106.592 Urea 643228 101.136 Methanol-I 39172 78.34 Methanol-II 163372 86.854 MSU 5266 17.209 Methyl Formate 24937 109.373 Formic Acid 19382 193.82 Acetic Acid 153295 153.295
WNA 284307 114.87 CAN-I 35870 108.698 CAN-II 37870 114.759 ANP 166235 116.656 24 Despatch/Sale Performance of GNFC plants TABLE NO: 2 DESPACTCH/SALE PERFORMANCE OF GNFC PLANTS FOR THE YEAR 2010-2011 DESPATCH/ SALE ACTUAL (MT) Urea 636900 Methanol 126059 Methyl Formate 1237 Formic Acid 18969 Acetic Acid 151420 WNA 63278 CAN 23873 ANP 164076 CAN 98619 AN Melt 42404 Cal. Carbonate 63709 Aniline 39687 TDI 17477 NB 1440 HCL 50804 Dry Fly Ash 111106
25 Finance Department ⇒ Introduction Financial management is that managerial activity, which is concerned with the planning and controlling of the company’s financial resources. So, finance is the blood or every organization. Without effective finance management company cannot survive for the long time. Finance management has to sell financial assets or securities such as share and bonds debentures; to investors in capital market to raise necessary funds. Finance management also raises funds by borrowing from bank, financial institutions and other resources. The exist and inseparable relation between finance function on one hand of business activity, directly or indirectly it involve the acquisition and use of money. “Financial management is the process of organising the flow of funds, so that the business can carry out its objectives in the most efficient manner to meets its obligation as they fall due.” This definition of financial management reflects the importance of finance department in a company. Financial management is management of fund raising and fund using or it is a procurement and utilization of fund. Finance is rightly called as “THE LIFE BLOOD OF BUSINESS.” Finance is needed at each and every stage of the company. At GNFC, the finance department is divided into 11 sections. Mainly the sections are
Banking and Fund Raising sections, insurance section, central accounting sections, concurrence section, store accounting section, etc. The whole system is computerized and this has helped the department to perform the work fast and more efficiently. 26⇒ Major Functions of Finance Department Financial Budgeting. Maintenance of recorded required by other Department. Liaison with Financial institution and other bodies. Payments of wages & salaries. Preparation of balance sheet of the company. Financial Projection for Expansion and Diversifications.⇒ Sections in Finance Department: As it has been mentioned earlier, GNFC’s Finance department is divided into the different sections. Finance department includes total eleven sections, which are as follows: 1. Bank section. 2. Bill payment section.
3. Central accounting section. 4. Marketing accounting section. 5. Stores accounting section. 6. Concurrence section. 7. Establishment section. 8. Budget and cost section. 9. Indirect taxation section. 10. Insurance section. 11. Foreign payment section. 271. BANKING SECTION Bank section is related to the day-to-day operation of cash & bank of the company. Bank section mainly arranges the fund in the company and reduces the cost of the company’s product. There are mainly three types of funds at GNFC: 1. Short term fund 2. Medium term fund 3. Long term fund Following are the main banks of the company:
TABLE NO: 3 Name of the Bank % share Bank of Baroda (lead bank) 35% State bank of India 25% Canada Bank 10% Bank of India 10% State bank of Saurashtra 5% HDFC Bank 5% ICICI Bank 6% DIAGRAM NO.:2 % share Bank of Baroda (lead bank) State bank of India Canada Bank Bank of India State bank of Saurashtra HDFC Bank ICICI Bank 28 The Bank Section has been divided in to two categories: I. Fund Management II. Operation Management⇒ FUND MANAGEMENT: Management of the fund is very crucial activity for GNFC because of its very vast business operations. This section every year prepares Credit Monetary Authority Data which is substantiated to respective banker of the company. Based on this, data recording agencies like CRISIL, ICRA & Fitch
etc. provide credit rating. There are several ratings such as AAA, AA, and B+ etc. GNFC got AAA rating; it becomes very easy for the company to get cash credit on loans. Fund management section also looks after the management of working capital. Short term and long term working capital are very important for the company.⇒ OPERATION MANAGEMENT: Operation Management covers all daily payment. Payments are made through cheques, if the amount is more than Rs.20, 000. Operation management covers two basic functions: Cash Operation Bank Operation Cash Operation: All routine payment like traveling, conveyance allowances, medical allowances, halting allowances etc. Bank Operation Bank operation covers all the major payment like payment to parties. Like Interest payments, Dividend payments, Income tax etc. 29 2. BILLS PAYMENT SECTION In G.N.F.C, payment section deals with preparation of bills for making payment and sending them to bank section. Thus, payment section is the link between the payee and payer. The payment rules in GNFC is that, any section can take the decision for the transaction up to Rs.50, 000. Then after if the transaction is above Rs.50, 000 than the concern department has to contact the finance department and after the legal procedure, payment is made.
• RAW MATERIAL PAYMENT. • WORKS/PROJECT PAYMENT. • SERVICE PAYMENT. • FOREIGN PAYMENT SECTION.3. CENTRAL ACCOUNT SECTION The whole finance department is divided into different section like Billpayment section, Insurance section etc. Each section has to account forrespective areas by way of payment to the parties, receiving payment fromthe parties etc. All the accounting is done by the various sections areconsolidated here in Central Accounting Section. Provision of depreciation on various Fixed Assets is charged againstthe utilization of and passage of time of fixed assets. GNFC has SAP system,which has got FICO MODULE. All the accounting entries are passed in theFICO module at the end of the month and run the system and close thebooks. After preparing the account it has to be audited by the practicing firmof Chartered Accountants. GNFC have M/S SR Batliboi & CO. CA Mumbai asStatutory audit. 304. MARKETING ACCOUNTING SECTION Receivables management is concern with the decision a companytakes regarding its overall credit and collection and the evaluation of individualcredit application. Marketing Accounts Section of Finance department of GNFC isconcerned with the management of receivables. It takes decision regardingcollection of incomes.
Generally credit period of 30-45 days is allowed. Over due interest is charged if the payment is not made within the speculated time period and a debit note is issued to the concern party. Marketing Account Section covers the following activities:⇒ Cash Collection As the company’s product is divided into two parts, Fertilizers and Industrial Products, thus the cash collection methods are also different. 1. Fertilizer Product 2. Industrial Products Cash Collection from Exported Products Collection of Miscellaneous Income 31 5. STORES ACCOUNTING SECTION Inventory section is responsible for making all accounting entry related to stores and valuation of inventories. Stores department when receives any material they send Material Receiving Report (MRR) to stores section. When stores department issues material to users department they inform stores accounts section. Sometimes the users department returns the issued material, than the store account section makes the reverse entry for that.
Stores accounts section prepares inventory ledger by the weightedaverage method which shows how much stores material is issued, how muchis returned by the users department etc. stores accounts section alsoprepares final account store.6. CONCURRENCE SECTION• Concurrence means pre audit.• No purchase order is placed without financial concurrence is done by the Concurrence Section.• The main objective of financial concurrence is to get competitive rates.• If the purchases are more than 1.5 lacs the financial representative should be taken into consideration.• The tenders which are opened, are signed by the representatives so that no cheating is done.• Comparison of order received and order described is done by this section.• While undergoing the contract, general terms and conditions of the Contracts are followed.• If the payment is more than Rs.20, 000 then the payment is made through Cheques. 32• Labor contracts are entered on the yearly basis, but the billing is done on the monthly basis.• Financial department see to it that no liability is left out for the payment.• If the payment is to be made for more than Rs.50,000 then the cheques has to be signed by “Additional General Manager”• No order and certificate is prepared for the cost less than Rs.5000. Thus, these section covers activity like:• To prepare comparative statement and negotiation with party. Comparative statement includes rate, days of credit, sales tax, excise duty, insurance, freight charges, etc.• After preparing comparative statement concurrence section invites the party for negotiation and try to obtain benefits from them.
7. ESTABLISHMENT SECTION In GNFC, Establishment section is also known as Employee OrientedSection, it deals with the transaction of employee’s remuneration.• After an employee is appointed, he is coded.• Master data is prepared which includes all the details of entire history Of the employee.• Every 25th of the month salary is paid through bank.• If, an employee is far-away from the banks, then DD to be sent.• Employees are tied-up with the banks for salaries, like :Bank of Baroda, ICICI , UTI, SBI, HDFCPersonal loans are given to an employee through above banks. 328. BUDGET & COSTING SECTION ⇒ Budget section “Budget is process of estimating the future expenses incurred toachieve decided goals and comparing actual cost with the predetermined onewith a view to take corrective action so that decided goal can be achieved intime with least cost and least time.” A budget is a comprehensive & coordinated plan, expressed infinancial terms for the operations & resources of enterprise for some specificperiod in future. Budget is plan of future.
Budget section prepares budget in starting of accounting year for whole year & get approval of board of directors. ⇒ Budget manual In GNFC, while budget is prepared, all the estimated sales, production, availability of raw materials etc. are taken in to account. So all departments concern with different estimations are budget manual like marketing, personnel, finance, purchase. ⇒ Budget control Budget control is controlling of the expenses by controlling consumption norms. Every month the expenditure data of each department is provided to the budget controller. Controlling of the expenses is basically by controlling the consumption norms. Budgetary control is a process through which a budget is implemented for attaining the budgetary targets by constantly monitoring the performance of budget centers on the basic of norms and all allocation. 33 ⇒ Cost section Product cost helps management to decide the production level market price or selling price and other parameter. It also helps the management to renew the product mix of various products of GNFC. Management can decide the production level as well its rolling price. This section prepares cost sheets, which provides the data on consumption norms per unit of product. It also helps to monitor the production level and cost ratio.9. INDIRECT TAXATION SECTION
There are two types of indirect taxes: • VAT ( value added tax ) • CST (central service tax) • Service TaxI. VAT (Value Added Tax) • It is considered to be the revenue of the state government. • The laws are framed and controlled by the state government. • Every company or organization registered is known as dealer, they get TIN i.e. Tax Identification No. • This is printed on the invoice. • ‘2’ is given for Gujarat out of the 11 digits • Permanent Nos. are given by the department for the sales and purchase activity. 34⇒ Payment to Government • Government gives 22 days as a grace period. • 18% interest has to be paid if the party is not able to pay the amount or there is any delay in the payment.⇒ Returns Statement/ Information should be given according to the specimen declared by the government. In the Gujarat form no./statement no. 201 is to be filled to give the information about the sales value by the dealer.⇒ Penalty
• 30 days are given to file the returns and if the dealer fails to make the payment then they have to pay Rs.100 per month for each delay in filing the return.⇒ Assessment • It can be in the following ways: • Demand to pay • Demand not to pay • Refund⇒ Appeal to Departments • Appeal to Tribunal • Appeal to High Court • Appeal to Supreme Court 35II. CENTRAL SALES TAX (CST) The central sales tax is controlled by the Central government and the revenue is given to the State government. As the dealers are from different states, there are chances of disputes on tax payment. Thus, to avoid this competition among the states, central government comes into picture. Form ‘C’ is issued by the local authorities to the dealer for the purchase of goods at chipper VAT rate. INPUT TAX CREDIT is not applicable. Form ‘H’ is for the International Marketing.III. SERVICE TAX
• Service Tax is established in 1994 in India. • Initially the tax rate was 5% in 1994 • There after it increased by 3% in 2004 i.e. it became 8%. • In May 2005 it again increased by 2% i.e. it was 10% • In June 2006 it increased by 2% i.e. it is 12% • Since then it is applicable as 10%.10. INSURANCE SECTION In GNFC all the plants are insured by the policy named “Industrial All Risk Policy”. There are two types of Insurance: 1. Life Insurance. (Insurance given against human life) 2. General Insurance.(Insurance given against property) The company deals with the general insurance policy. The various types of general insurance policy are as follows: 1. Fire Policy. 2. Marine Policy. 3. Liability Policy. 4. Cash Policy. 5. Erection Policy. 361. Fire Insurance Policy The Fire Insurance Policy includes, Flood Earthquake Inundations Impact Explosion2. Marine Insurance Policy
• It provides protection against the goods in transit. Thus goods in transit i.e. by air, by road, it also provides protection against theft of truck, accidents of the trucks etc.3. Liability Policy • For any claim arising out of the deals of the employee. • Public Liability: In case of the blast, Insurance cover is give to the public.4. Cash Insurance Policy • Safety (in transit) for the cash may get damaged.5. Erection Policy • Civil work. • Actual erection of plant & machinery and its foundation. • Third party Liability ( i.e. worker dies while working) • Surrounding property. 37 TABLE NO: 4 Insurance Company % share Iffco Tokyo ( lead company) 30 % New India Insurance Company 20 % ICICI Lombard 15 % Reliance General Insurance Company Ltd 15 % United India Insurance 10 % Govt. of Gujarat Insurance fund ( sleeping member) 10 % DIAGRAM NO: 3
% share Iffco Tokyo ( lead company) New India Insurance Company ICICI Lombard Reliance General Insurance Company Ltd United India Insurance Govt. of Gujarat Insurance fund ( sleeping member)⇒ Employee welfare policy GNFC is having a group/ personal accident policy. This policy covers 2500 employees of the company. Every year company pays Rs.60 lacs as a premium for the employee’s insurance policy. Presently company provides as compensation 100 times salaries in case of death. This compensation is paid to his nominee. In October 2003, at the time of explosion in nitro phosphate plant, company has to recover Rs.70 crore from the insurance company as insurance claim due to explosion towards material damage and loss of profit to company. This explosion affected the people who live in the near by town/village and they get Rs.15lacs from GNFC towards loss of property to them due to the event that occurred. 38 THEORIES OF INVENTORY MANAGEMENT⇒ Inventory Management What do you mean by inventory? “Inventory” is a list for goods and materials, or those goods and material themselves, held available in stock by a business.
“Management of Inventories” is with the primary objective of determining, controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. A subsidiary ledger which is usually used to record the details of individual items of stock. Inventories can also be used to hold the details of other assets of a business. There are three types of inventory: Raw materials, work in process and finished goods. Raw materials are materials and components that are inputs in making final products. Work in process also called stock in process refers to goods in the intermediate stages of production finished goods consist of final products that are ready for sale .inventory represents the second largest asset category for manufacturing companies next only, to plant and equipment he proportion of inventory to total assets generally consists of 15 to 30 percentage. Inventories is a list of goods available in stock at warehouses .it is also use for a list of contains of a household and for a list of testamentary purpose of the possession of someone who has died in accounting inventory consists as assets. 39⇒ Nature of Inventories Inventories are classified according to uses and point of entry in the alteration is as follows: • Raw material • Work in process goods, • Finished goods & • Spares and consumables.
• Raw Materials Raw materials are those units that are converted in to finished production through manufacturing process. Raw material inventories are those units which have been purchased and stored for future. Under head of raw materials GNFC are maintained rock phosphates, liquid ammonia etc.• Work in Process goods It is also called stock in process. It refers to goods in the intermediate stage of production. These inventories are semi finished products. It presents the products that need more work before they become finished product for sale.• Finished goods Finished goods consist of final products that are ready for sale. Finished goods are those completely manufacturing products which are ready for sale. Stock of material and work in process facilitate production, while stock of finished goods is required for smooth marketing operation. Thus inventories serves as a link between production and consumption of goods. 40• Spares and consumables Spares play an important part of inventories by themselves. Their consumption pattern defers from that of raw material, consumables and finished goods. They also even keep these items in a spare which is not easily available. There is the material which act as catalysis in the production process and are not directly found in to output. This enables the production process to function smoothly like - fuel, coil, oil, LSHS etc, are the example of the consumables.
⇒ Objective of the Inventory Management The basic responsibility of the financial is to make sure the firm’s cash flows are managed efficiently. Efficient management of inventory should ultimately result in the maximization of the owner’s wealth. It was indicated that in order to minimizes cash requirements, inventory should be turned over as quickly as possible, avoiding stock-outs that might result in closing down the production line or lead to a loss of sales. The main objective of inventory management consists of two parts. 1. To minimize investment in inventory. 2. To meet demand for the product by efficiently organizing the production and sales operations. The firm should minimize investment in inventory implies that maintaining inventory involves costs, such that the smaller the inventory, the lower is the cost to the firm. But inventory also provide benefits to the extent that facilitate the smooth functioning of the firms. 41⇒ Why Inventory Management? An increased emphasis on liquidity has lead businessman to hold cash and securities in performance to inventories. Inventories are now often referred to as the grave yard of the business. The surplus of the stock has been a principal guide of failure thus lead to change their view regarding holding of inventories and adopt scientific way
of inventory holding. Following are factor that are following the view of scientific inventory control. 1. Size of Business The increased size of business establishment has played an important role in modern large scale enterprise. Often it operates with small profit margin which can be eliminated by scientific inventories control method. 2. Wide variety and complexity The wide variety and complexity in modern technology requires conscious inventory management. The larger the range of requirement, the greater the number of problem of investment, procurement, storage, holding, accounting, shortage and stock out deterioration etc. 3. Urgency in material requirements The need and importance of inventories varies in different production with the ideal time, cost of men, machinery and urgency of requirement. But it is highly uneconomical to keep a secure and a rapid capital turnover and the most effective means of achieving these objectives is to control stores. 42⇒ Factors Influencing Inventory Management Decision
There two types of factors. They are external and internal factor which influence decision making for inventory in an organization. The external factor arises from market conditions, credit availability and government regulation. The external factors are not controllable easily while internal factor are controllable with effective inventory management. Following are the factors influence the inventory decision of an organization2. Lead Time Lead time can be defined as the period that elapses between the reorganization of a need and its fulfillment. Inventories have to take care of normal consumption during lead time because it increases the inventories and it will have to be increased correspondingly. The time spent on each of these four stages will vary from item to item. Out of these administrative and inspection lead time are under control of purchase. Procurement lead time is the largest time. This should be taken care of while negotiating the order and supply detail.3. Relevant Cost The inventory problem is one of the balancing costs, so that total cost is minimized. Their costs are: A. Cost of Ordering The activities that are carried out for fulfilling the need for material, which consume executive time, stationary and communication charges, these are the cost of ordering. 43 B. Cost of Carrying out Inventories:
The moving factor to control inventory is the cost incurred by holding. It is the cost that is expressed as percentage of the average investment i.e. capital investment, spoilage insurance cost. . ⇒ Material Control Techniques The concept of material control techniques signifies the efficiency of any organization. The contingent upon having the right material of right quality at right quantity at the right time in following three areas: 1. Purchase Control 2. Storage Control 3. Warehouse Accounting 1. Purchase Control This is one of the basic functions of inventory management and forms a major part of it. It needs considerable expertise not only negotiating but also in the techniques of competitors and studying of economic trends in respect of materials to be purchased in large quantity to increase the profit. o Objectives of Purchasing: 1. To maintain continuity of production 2. To contribute to the competitiveness of the product 3. To contribute towards higher productivity 4. To increase profit 5. To contribute towards standardization, variety reduction, value analysis. 442. Storage Control
The control of materials when it is in storage is affected through what is known as theperpetual inventory. Thus two main functions of the perpetual inventory system have beenstudied which are 1. Receipt and Issue System, 2. Maintenance of Store Records The use of inventory control technique also has been evaluated considering existing position of GNFC. 3. Warehousing System and Procedure The procedure comes into operation immediately on receipt of dispatched documents or dispatched intimation in the stores and covers on the activities i.e. clearance, delivery, inspection, stock charging and preservation, issue and return of materials by the ends after striking out balance from the stock card and delivery of the account department. 45 Inventory Management In GNFC:
GNFC is maintaining inventories successfully. There are total 1, 40,000items in inventory whose total value is Rs.1 crore (approx.) Bifurcation ofinventories percentage wise as shown below: TABLE NO: 5Mechanical Spares 57 %Catalyst & chemical spares 12 %Electrical spares 11 %Instrumentation items 10 %Other miscellaneous items 10 % In 57% Mechanical Spare, there are some insured items which areessential and cannot produce immediately. These items are not come into usedaily. These items are very costly and carrying cost is also high.Bifurcation of Inventories: DIAGRAM NO: 4 Mechanical Spares Catalyst & chemical spares Electrical spares Instrumentation items Other miscellaneous items 46 GNFC maintain some inventories different ways like use of SAPsystem.
COMPOSITION OF THE NET OPERATING CYCLE DIAGRAM NO: 5 47 Material Control Techniques in GNFC
To know the practical use of various inventory control techniques in GNFCfollowing inventory control techniques were studied and evaluated which are: 1. Codification System 2. Classification of Inventory: (a) ABC Classification (b) Determination of E.O.Q (c) FSN Classification (d) HML Classification (e) Zero Inventories 3. Determination of Inventories Level: (a) Minimum Stock Level (b) Maximum Stock Level (c) Re-Order Level 4. Importance Substitution. 5. Supply Chain Management & Inventory Control. 481. Codification System:
Codification system means assigning a unique code or name to each item based on its use, characteristics, importance and other features. It is the process of allocating a code after logical grouping and sub grouping considering material type and application.• Principles of Material Code: There should be adequate provision for future expansion and there should be no duplication. One particular size and type should be at one place only. Description should be brief, very accurate, specification, part number; drawing number should be quoted whenever required. Unit of issue and receipts should be given and followed strictly. Code should be understandable by those who have to use it. It should be properly classified for section, classed and group. One unique code for each item represented by single code. Advantages: It enable systematic grouping of similar items together. It helps in avoiding duplication of items. Rationalized codification result in variety of reductions. Many firms have successfully reduced the number of items stock by them. It avoids confusion caused by the long and unwieldy description and accurately logically and logically identifies all items. It is the starting point for standardization It lays the foundation for an efficient purchase organization by helping to from specialized commodity base purchase section. Since items are identified by source of supply, it is possible to bulk them together to take advantages of bulk discount. 49 Classification of Inventory
The Inventories having huge amount of use in the organization has tobe controlled very strictly and low amount of use should be kept low control. The main classification of Inventory is as under: (a) ABC classification (b) Economics Ordering Quantity (c) FSN classification (d) HML classification (e) Zero Inventories(A) ABC Classification In most of the inventories a small proportion of items account for a verysubstantial usage and large proportion of items accounts for a very smallusage. ABC analysis, based on this empirical reality, advocates in essence aselective approach to inventory control which calls for a greater concentrationof efforts on inventory items accounting for the bulk of usage value. ABC classification is a basic analytical management tools which enabletop management to direct their efforts where the result will be maximum. Thistechnique properly knows as “ALWAYS BETTER CONTROL” has universalapplication in many areas of human endeavor. The techniques tires toanalyze the distribution of any characteristic by money value of importance inorder to determine its priority. 49 TABLE NO: 6Class A Class B Class C Class
Items value 70% 20% 10%Number of items 10% 20% 70% DIAGRAM NO: 6 Items value A Class B Class C Class(B) Economic Order Quantity: Order quantity is defined as the quantity or its rupee equivalent forwhich fresh order of as inventory item is placed. The decision regarding orderquantity of various inventory items is of vital importance in the management ofthe inventory item of which total of two types of cost opposing each other willbe the minimum at this level, the sum of all cost of on type is exactly equal tothe sum of all the cost of the other type. Thus quantity is often referred to aseconomic order quantity, for the purchase. Purchase item and economic lotsize for production item. DIAGRAM NO: 7 50 Determination of EOQ:
The economic order quantity can be determined with the help of thefollowing formula: EOQ=|2AB/CI Where, A= annual usage in units. B= buying cost/ordering cost. C= carrying cost. I= inventory carrying cost. Disposal of Non Moving Items Inventory Control Review Meeting Alternative Material Use Circulation of Non Moving / Slow Moving Items list.(C) FSN Analysis In GNFC FSN analysis carried for consumable items, which are used by multi users, FSN means fast moving (F), slow moving (S), non moving (N) items analysis. The norms established by GNFC for each items are as follows: Fast Moving Items: GNFC has norms that fast moving items have the following: 1. It should have more than 5 issue transactions in a year. 2. There should be multi user. Slow Moving Items: GNFC has norms that slow moving items have the following; 1. Items should have transaction between 1 to 5 time in a year 2. There should be multi user. 51 Non Moving Items:
GNFC has norms that are non moving items have the following: Items have no issue transaction for last 3 years Items should have some quantity available in all the past three years.• Actions taken for FSN Analysis: Fast Moving Items: a. Close watch is required of users, availability of short notice, at time maximum withdrawals etc data are collected and enough care is taken while fixing level. b. Annual rate contract are made to avoid stock outs c. Frequency of review is more d. Frequent changes of level are made depending upon the importance of plant / equipments. Slow Moving Items: a. For slow moving items, consumption pattern is studied. In some cases either the item are being used only in shutdown or by limited users only. While fixing level user weightage is given and it withdrawals. Normally these items are for specific users and levels can be kept low but user should give their requirement of abnormal requirement of shutdown etc. b. Frequency of review is less. Non Moving Items: a. Normally on closing of the financial year report are prepared for non moving items. This report is then circulated to all concerned users department and list will be sent to the store’s disposal procedure. 52
b. Mean while users department study the use of equivalent material against other similar nature material requirement and give their comment. c. Accordingly excess material declared for disposal will disposed off.(D) HML Analysis This method is similarly to ABC classification but in this case instead of consumption value of items, medium value Items is considered. As the name implies the material are classification according to their unit price as high value Items and negotiate the price. As per the company rules: The items having value greater than or equal to Rs. 1,00,000 are classified as high value Items. The items having individual value greater than or equal to Rs. 25,000 and below Rs. 1,00,000 is considered to be medium value items. If the value is less than Rs. 25,000 then it is low value items. HML analysis value is done for electrical items, instrumentations andother items.(E) Zero inventories: GNFC is continuously maintaining the zero inventories of Raw Materiallike oil and gas. This is possible because the company has contracted withsuch suppliers to provide the material on demand on time. Lubricants whose 200 liters, 50 to 70 drums are used whose supplier isIOC. GNFC has negotiated with IOC and provide it accommodation in plant
which is known as IOC depot. The IOC keeps its stock there and when GNFC uses from it when it is needed lubricants only than it has to pay till that GNFC doesn’t need to pay. The inventory remaining at depot is called the inventory of IOC. On the behalf of IOC, GNFC had just taken care of it and for that IOC pays GNFC holding charges also. So the transaction cost of GNFC for lubricant is also reduced. GNFC is also trying for such a depot for bearing also. For gas also the company has contract with GAIL India ltd, for supply of gas as requires, lot of saving inventory and its relevant cost is observed due to this. Determination of Inventory Level: The inventory level concept consider store keeping as profit intensive service to production store keeping should contribute directly to profitability and be concerned with matter as flow, packing and dispatch. In the same way that specification is relared to technical needs. so, general level of stock should be relared to the sales andf production policies of the company. There are various levels of stock which are established by the GNFC are as follows: (1) Minimum Level (2) Maximum Stock Level (3) Re-order Stock Level (1) Minimum Level: This is the level at which any future demands upon the bill will necessary withdrawals from the reserve stock.
54 The Minimum stock level is converted to meet exceptional conditions of Demand. Two months usage of material taken into considerations by the GNFC Ltd. As a minimum stock level. (2) Maximum Stock Level: This is the Level above which the stock should not be permitted to rise. Eighteen months consumption of stocks taken into considerations by GNFC Ltd. As a Maximum stock level. (3) Re-order Stock Level: The Point of which the order has to be placed. The Re-order level may not always be numerically equal to the Economic Order Quantity. It should be regularly reviewed for paid moving items. For fast factors as change in demand, delivery times or variation in trend.(D) Importance Substitution: GNFC has successfully adopted & exercised these techniques. It hasmany items / materials which are imported from abroad. But now, GNFC hasstarted to substitute the imported item by substituting these items / materialsby finding domestic supplier for this product. GNFC is importing rockphosphate which is used as raw materials. Now GNFC has developedsupplier on domestic market and made contract with him for supply of that rawmaterial. Procedure Followed: a. Items are selected b. It is checked for dimension as well as for material of construction. It is also if required check it with the help of metal analyzer to know exact material of construction. Drawings are developed
56 c. Local indigenous parties are developed to get it manufactured locally. d. Trials are taken after success it is stopped procuring from abroad (E) Supply Chain Management & Inventory Control: Supply chain management solve the purchasing problem by foregoing the short term benefit of competitive bidding in order to develop special long term relationship. In exchange the vendor coincides his production schedule and quantity standards to plant needs thus reducing uncertainty and hence the need for excess inventories. The release and scheduling process with the supplier consist of four steps: a. Make a long term purchase commitment to supplier. b. Give supplier a monthly forecast for a rolling period of six month of production. c. Establishment with a supplier a monthly form release for the next month of production. d. Make an arrangement of supplier on the policy for changing delivery dates. Inventory Management and Inventory Control Practice: In all the company they have all types of inventories. But the main important thing is when and how many times control of the inventories of all the companies is is required. So in GNFC control of all the inventories is mentioned as under: The company regularly held the meeting with an agenda of inventory controls. Meeting are held quarterly, semi quarterly or annually as per the need. The purpose is to see the loopholes and try to remove it.
57 Brainstorming is to make control the problem of excess inventory. By arranges such meeting, all the concerned department are informed. The inventory level is maintained with storing department. These meeting are held as a part of constant performance review. The company maintained the space and planning for the particular department for example, suppose company has a Pipes and in production department it is required 500 pipes, but here already company has 200 pipes. So company now requires only 300 pipes and they purchase it. So in this way company arrange space and plan to maintain it. Strength & Weakness of Inventory Management Strength: 1. Well organized structure of Inventory Management 2. Well Defined Policies and Plans. 3. Good links with raw material requirements planning and monitoring with annual and monthly requirements plan. 4. Well Established vendor registration procedure. Weakness: 1. Non moving items inventory is high. It approx 15% need more clarity and policy plan. 2. Disposal activity resulats are not satisfactory.
58 DATA INTERPRETATION AND ITS ANALYSIS Valuation of Inventories: A. At Plant: Stores & Spares (including coal) = At weighted average cost. Raw Materials, Finished Goods & Work in Process = At Lower of Cost or Net Realizable Value. Annual cost is computed on full absorption costing method including material cost and conversion costs. Fertilizers of Sub-standard Quality = At Lower of Cost or Net Realizable Value as estimated by the Company. Annual cost is computed on full absorption costing method including material cost and conversion costs. B. At Field: Finished Goods = At Lower of Cost or Net Realizable Value. Annual cost is computed on full absorption costing method including material cost and conversion costs. Costs of field stocks include freight to the destination.
Fertilizers of Sub-standard Quality = At Lower Costs or Net Realizable Value as estimated by the Company. • Note: Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. 59 Analysis of Inventory Management The total inventory management of the company includes the raw materials inventory, work in process inventory, finished goods inventory. The total inventory of the company in 2009-2010 is Rs. 40503.38 lacks. GNFC has total of approx. 214683 different types of inventories. TABLE NO: 7 (in lakhs) Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total 26957.87 38846.52 38599.79 43075.71 40503.38 The above graph shows the total inventory management of the company various parts GRAPH NO: 1 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Stores & Spares Raw Materials Work in Process Finished Goods Total
The report includes different parts of analysis of the inventory management which is as follows: 1. Analysis of the composition of inventory. 2. Effects of the various inventory ratios. 3. Study of the different inventory management techniques 4. Find out the inventory management and control practice at GNFC 5. The analysis of the report is divided into main four parts, which are A. Under composition of inventory B. Various inventory ratios C. Techniques of inventory D. Control of inventory 60 Analysis of inventory management Inventory conversion period is very closely related to the inventory management. Inventory conversion is the part of the net operating cycle. 1. Raw material conversion period 2. Work in process conversion period 3. Finished goods conversion period. DIAGRAM NO: 8
61 Raw Material Conversion Period: Average Raw material Inventory ______________________________ Raw material consumption period TABLE NO: 8 (in lakhs)Particulars 2005-200 2006-200 2007-200 2008-200 2009-2010 6 7 8 9Average R.M. Inventory 4041.72 5274.76 5522.4 6090.595 8270.05R.M. Consumption per 214.72 294.78 341.99 343.39 346.56
dayR.M. Conversion Period 19 days 18 days 16 days 18 days 24 days GRAPH NO: 2 30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Raw Material Conversion Period ⇒ Interpretation: Raw material conversion period is the time period between receiving the raw material and sending them for production. It is the period of stocking the raw materials for usage. So higher the ratio lower will be the profit. In the above chart raw material conversion period lies between 15 to 19 days for the last five years. In 2004-2005 it is 15 days which is lowest and so it is good for the company. But in 2005-2006 it is 19 times which is not good for the company because higher the ratio the lower will be the profit. In 2008-2009 the ratio is 18 times which is also very high and so not good for the company. So company should try to reduce it. 62 Work in Process Conversion Period: Average WIP Inventory ____________________
Cost of Production TABLE NO: 9 (in lakhs)Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Average W.I.P Inventory 2422.75 1793.74 2031.60 2707.93 1110.41Cost of Production per day 319.38 398.08 461.47 507.88 498.04W.I.P Conversion Period 8 days 5 days 4 days 5 days 2 days GRAPH NO: 3 9 8 7 6 5 4 3 2 1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Work in Process Conversion Period ⇒ Interpretation: Work-in-progress conversion period is the time period when the raw materials are received for production and the time for their dispatch. The higher the ratio the lower will be the profitability. In 2007-2008 the ratio is 4 days which is too low and so it is good for the company. But in 2005-2006 the ratio is 8 days which is too high. But in 2008-2009 the ratio is 5 days which is low and so good for the company. But as we have not compared it with other companies any decision can’t be taken. 63
Finished Goods Conversion Period: Average finished goods Inventory ______________________________ Costs of goods sold TABLE NO: 10 (In lakhs) Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Average Finished Inventory 4351.265 8795.65 11532.51 10332.275 7251.50Cost of Goods Sold 70.81 84.71 188.63 81.05 39.632Finished Goods Conversion 61 days 103 days 61 days 127 days 182 daysPeriod GRAPH NO: 4 200 150 100 50 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Finished Goods Conversion Period ⇒ Interpretation: Finished goods conversion period is the time of storage of finished goods in the warehouse until they are sold. The higher the ratio the low will be the profit. If we store the huge stock in warehouse then we are losing the opportunity cost. In 2004-2005 the ratio is 35 days which increased by 6 days i.e. 41 days in 2005-2006 which is not good. But in 2006-2007 the ratio is 114
days which indicates that huge stock in laying at the godown and so the company is losing its profit and so the profit in that year is very low. But in 2008-2009 it is 86 days which is too high and not good for the company. But as we are not aware about other companies in this industry any comment about it is not appropriate. 64 Inventory Conversion Period TABLE NO: 11Particulars 2005-06 2006-07 2007-08 2008-09 2009-10R.M. Conversion Period 19 days 18 days 16 days 18 days 24 daysW.I.P. Conversion Period 8 days 5 days 4 days 5 days 2 daysF.G. Conversion Period 61 days 103 days 61 days 127 days 182 daysInventory Conversion 88 days 126 days 81 days 150 days 208 daysPeriod GRAPH NO: 5 ⇒ Interpretation: Inventory conversion period indicates in how much days our inventory gets converted. In this ratio we will consider the entire inventory ratio. We will consider all type of inventories i.e. raw materials, work in process and finished goods. The higher the ratio the higher will be the profitability. In 2006-2007 the