1. A
SUMMER TRAINING REPORT
ON
“INVENTORY MANAGEMENT”
FOR
GUJARAT NARMADA VALLEY FERTILIZER COMPANY
LIMITED, BHARUCH
SUBMITTED TO
ANAND INSTITUTE OF MANAGEMENT
IN 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

2. CERTIFICATE

3. TABLE OF CONTENTS
Preface
Acknowledgement
Declaration
Executive Summary
SR. NO. PARTICULAR PAGE
NO.
PART – I GENERAL INFORMATION
1. INTRODUCTION 1
2. FUNCTIONAL DEPARTMENTS 2
 PRODUCTION DEPARTMENT
 HUMANRESOURCE DEPARTMENT
 FINANCE DEPARTMENT
 MARKETING DEPARTMENT
 INFORMATION TECHNOLOGY
PART – II INDUSTRY INFORMATION
3. RESEARCH METHODOLOGY 5
SWOT ANALYSIS 6
4. INDUSTRY PROFILE 7
5. COMPANY PROFILE 12
6. THEORIES OF INVENTORY MANAGEMENT 39
7. DATA INTERPRETATION AND ANALYSIS 59
8. LIMITATIONS OF STUDY 70
9. FINDINGS 71
10. CONCLUSIONS 72
LIST OF GRAPHS
Sr. No. PARTICULARS TABLE NO. PAGE NO.

4. 1 RAW MATERIAL CONVERSION 1 60
2 WORK-IN-PROCESS CONVERSION 2 62
3 FINISHED GOODS CONVERSION 3 63
4 INVENTORY CONVERSION 4 64
5 TOTAL INVENTORY INVESTMENT 5 65
6 INV ENTORY TURNOVER RATIO 6 66
7 RAW MATERIAL TURNOVER RATIO 7 67
8 WORK-IN-PROCESS TURNOVER 8 68
RATIO
9 FINISHED GOODS TRUNOVER 9 69
RATIO
LIST OF DIAGRAMS
Sr. No. PARTICULAR DIAGRAM NO. PAGE NO.
1 SHARE HOLDING PATTERNS 1 14
OF GNFC LTD.
2 DIFFERENT BANKS OF GNFC 2 28

5. 3 DIFFERENT INSURANCE 3 38
COMPANY OF GNFC
4 BIFURCATION OF INVENTORY 4 46
5 ABC ANALYSIS OF INVENTORY 5 50
6 EOQ MODEL 6 50
7 NET OPERATING CYCLE 7 61
PREFACE
“Experience is the best teacher.” This saying plays a guiding line in
our lives and also in project reports that are an integral part of the MBA
programmed in Gujarat University.

6. Today’s age is an age of management. Management is the backbone
of any organization or any activity done. The real success of management lies
in applying the professional management techniques an all managerial
activities.
Hence, to attain this objective and to have the outlook of all intricacies
of corporate world I have undertaken the Summer Training at “GUJARAT
NARMADA 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 I
am expected to expand my creative thinking ability and to get the training of

7. 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 the
final frontier towards achieving a master of business administration degree,
the activity of going through industrial orientation has bridged the gap
between the academics and practical real life work for me. It has prepared me
to apply myself better to become good manager. Normally, it require a lot of
people support to complete this opportunity to acknowledge their support for
me.
First of all I am thankful to Mr. N.K. Patadia (A.G.M. HRD) GNFC for
allowing 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 guiding
me 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 precious
time 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 support
my project would not be possible to complete.
I have been able to prepare my report successfully and I acknowledge a
special thanks to all those people without whose support it was impossible for
me to make the project report.
DECLARATION

8. 1.EXECUTIVE SUMMARY
During the Summer Training at “Gujarat Narmada Valley Fertilizers
Company Ltd”. I have tried to cover the glimpse of overall working of the

9. organization. G.N.F.C. is a large fertilizer and petrochemical company
established on 10th May, 1976. G.N.F.C. has two aims like to do social work
for 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.

10. A
PROJECT REPORT
ON
GENERAL INFORMATION ABOUT THE COMPANY
IN THE AREA OF
FINANCE
FOR
GUJARAT 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

11. INTRODUCTION
Agriculture the backbone of Indian Economy still holds its relative
importance for more than a billion peoples.India is primarily an agriculture
based economy. The agricultural sector and its other associated spheres
provide employment to a large section of the country's population.
Fertilizer in the agricultural process is an important area of concern.
Fertilizer industry in India has succeeded in meeting the demand of all
chemical fertilizers in the recent years. The Fertilizer Industry in India started
its first manufacturing unit of Single Super Phosphate (SSP) in Ranipet near
Chennai with a capacity of 6000 MT a year.
The company has varied products and diversification as well as growth
strategy. It has been basic to India’s progress not only because of its
inception immediately after independence. But on one hand it has helped in
production of strong needed fertilizer as well as the chemical products ands
on other hand has provided employment to many people. Such employment
is not only limited to company’s own premises but all other industries whose
growth has been fostered with development of this fertilizers and chemical
company are benefited through if.
1

12.  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

13.  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

14. (n)Code Solutions - An IT Division of GNFC
(n)Code Solutions offers Digital Certificates that can integrate with
applications such as emails, workflow, enterprise wide applications, or secure
VPNs. The Digital Certificates can be used by individuals, corporate and
governments to secure online B2B/B2C applications and other online
transactions.
It has promoted a portal called www.nprocure.com offering end-to-
end electronic procurement services provider. (n)Code also designs and
builds world class data center infrastructures.
(n)Code also offers a wide range of Security Services which include Managed
IT Services & Secure Infrastructure design & building Services.
4
RESEARCH METHODOLOGY

15.  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

16. 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

17.  Introduction:
Fertilizers sector is a very crucial for the Indian economy because it
provides a very important input to agriculture. The fertilizer industry in India
has played a pivotal role in achieving self-sufficiency in food grains as well as
in rapid and sustained agriculture growth. India is the third largest procedures
and consumer of fertilizer in the world after China and the United States.
Agriculture, which accounts for one fifth of GDP, provides sustenance
to two-thirds of the population. Besides, it provides crucial backward and
forward linkages to the rest of the economy. Successive five-year plans have
laid stress on self-sufficiency and self-reliance in food grains production and
concentrated efforts in this direction have resulted in substantial increase in
agriculture production and productivity. This is clear from the fact that from a
very modest level of 52 million MT in 1951-52, food grains production rose to
above 208.6 million MT in 2005-06.
Keeping in view the vital role played by chemical fertilizers in the
success of India’s green revolution and consequent self-reliance in food grain
production, the Government of India has been consistently pursuing policies
conductive to increased availability and consumption of fertilizers in the
country. 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 has
risen to the level of 104.5kg in 2005-06.
7

18.  Growth in Fertilizer Industry:
The Indian fertilizer industry has succeeded in meeting almost fully the
demand of all chemical fertilizers except for MOP. The 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
foodgrains. Subsequently, green revolution in the late sixties gave an impetus
to the growth of fertilizer industry in India. The seventies and eighties then
witnessed a significant addition to the fertilizer production capacity.
The installed capacity as on 30.01.2003 has reached a level of 121.10
lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of
urea after reassessment of capacity) and 53.60 lakh MT of phosphatic
nutrient, making India the 3rd largest fertilizer producer in the world. The rapid
build-up of fertilizer production capacity in the country has been achieved as a
result of a favourable policy environment facilitating large investments in the
public, co-operative and private sectors. Presently, there are 57 large sized
fertilizer plants in the country manufacturing a wide range of nitrogenous,
phosphatic and complex fertilizers. Out of these, 29 unit produce urea, 20
units produce DAP and complex fertilizers 13 plants manufacture Ammonium
Sulphate (AS), Calcium Ammonium Nitrate (CAN) and other low analysis
nitrogenous fertilizers. Besides, there are about 64 medium and small-scale
units in operation producing SSP.
8

19.  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

20.  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

21.  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

22. 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

23.  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

24.  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.

25. 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.

26. • 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 world's 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 country's farmer
community.
• India's largest producer of Formic Acid, Acetic acid and Methanol.
15
• India's only manufacturer of Glacial Acetic Acid through the cutting-
edge Methanol route.
• India's 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 Company's R&D
labs.

27.  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.

28. 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 world's 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

29. 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

30.  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.

31. 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

32. 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

33. • 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) .

34. 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.
22
4. 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).

35. 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.

36. 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

37. 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

38. 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

39. 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.

40. 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.
27
1. 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:

41. 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

42. 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.

43. • 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 Bill
payment section, Insurance section etc. Each section has to account for
respective areas by way of payment to the parties, receiving payment from
the parties etc. All the accounting is done by the various sections are
consolidated here in Central Accounting Section.
Provision of depreciation on various Fixed Assets is charged against
the 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 the
FICO module at the end of the month and run the system and close the
books. After preparing the account it has to be audited by the practicing firm
of Chartered Accountants. GNFC have M/S SR Batliboi & CO. CA Mumbai as
Statutory audit.
30
4. MARKETING ACCOUNTING SECTION
Receivables management is concern with the decision a company
takes regarding its overall credit and collection and the evaluation of individual
credit application.
Marketing Accounts Section of Finance department of GNFC is
concerned with the management of receivables. It takes decision regarding
collection of incomes.

44. 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.

45. Stores accounts section prepares inventory ledger by the weighted
average method which shows how much stores material is issued, how much
is returned by the users department etc. stores accounts section also
prepares 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.

46. 7. ESTABLISHMENT SECTION
In GNFC, Establishment section is also known as Employee Oriented
Section, 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, HDFC
Personal loans are given to an employee through above banks.
32
8. BUDGET & COSTING SECTION
⇒ Budget section
“Budget is process of estimating the future expenses incurred to
achieve decided goals and comparing actual cost with the predetermined one
with a view to take corrective action so that decided goal can be achieved in
time with least cost and least time.”
A budget is a comprehensive & coordinated plan, expressed in
financial terms for the operations & resources of enterprise for some specific
period in future. Budget is plan of future.

47. 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

48. There are two types of indirect taxes:
• VAT ( value added tax )
• CST (central service tax)
• Service Tax
I. 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

49. • 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
35
II. 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

50. • 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.
36
1. Fire Insurance Policy
The Fire Insurance Policy includes,
 Flood
 Earthquake
 Inundations
 Impact
 Explosion
2. Marine Insurance Policy

51. • 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

52. % 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.

53. “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.

54. • 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.

55. ⇒ 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

56. 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

57. 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 organization
2. 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:

58. 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.
44
2. Storage Control

59. The control of materials when it is in storage is affected through what is known as the
perpetual inventory. Thus two main functions of the perpetual inventory system have been
studied 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:

60. GNFC is maintaining inventories successfully. There are total 1, 40,000
items in inventory whose total value is Rs.1 crore (approx.) Bifurcation of
inventories percentage wise as shown below:
TABLE NO: 5
Mechanical 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 are
essential and cannot produce immediately. These items are not come into use
daily. 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 SAP
system.

61.  COMPOSITION OF THE NET OPERATING CYCLE
DIAGRAM NO: 5
47
 Material Control Techniques in GNFC

62. To know the practical use of various inventory control techniques in GNFC
following 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.
48
1. Codification System:

63. 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

64. The Inventories having huge amount of use in the organization has to
be 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 very
substantial usage and large proportion of items accounts for a very small
usage. ABC analysis, based on this empirical reality, advocates in essence a
selective approach to inventory control which calls for a greater concentration
of efforts on inventory items accounting for the bulk of usage value.
ABC classification is a basic analytical management tools which enable
top management to direct their efforts where the result will be maximum. This
technique properly knows as “ALWAYS BETTER CONTROL” has universal
application in many areas of human endeavor. The techniques tires to
analyze the distribution of any characteristic by money value of importance in
order to determine its priority.
49
TABLE NO: 6
Class A Class B Class C Class

65. 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 for
which fresh order of as inventory item is placed. The decision regarding order
quantity of various inventory items is of vital importance in the management of
the inventory item of which total of two types of cost opposing each other will
be the minimum at this level, the sum of all cost of on 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, for the purchase. Purchase item and economic lot
size for production item.
DIAGRAM NO: 7
50
Determination of EOQ:

66. The economic order quantity can be determined with the help of the
following 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:

67. 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

68. 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 and
other items.
(E) Zero inventories:
GNFC is continuously maintaining the zero inventories of Raw Material
like oil and gas. This is possible because the company has contracted with
such suppliers to provide the material on demand on time.
Lubricants whose 200 liters, 50 to 70 drums are used whose supplier is
IOC. GNFC has negotiated with IOC and provide it accommodation in plant

69. 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.

70. 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 has
many items / materials which are imported from abroad. But now, GNFC has
started to substitute the imported item by substituting these items / materials
by finding domestic supplier for this product. GNFC is importing rock
phosphate which is used as raw materials. Now GNFC has developed
supplier on domestic market and made contract with him for supply of that raw
material.
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

71. 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.

72. 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.

73. 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.

74.  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

75. 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

76. 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 9
Average R.M. Inventory 4041.72 5274.76 5522.4 6090.595 8270.05
R.M. Consumption per 214.72 294.78 341.99 343.39 346.56

77. day
R.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
____________________

78. Cost of Production
TABLE NO: 9
(in lakhs)
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
Average W.I.P Inventory 2422.75 1793.74 2031.60 2707.93 1110.41
Cost of Production per day 319.38 398.08 461.47 507.88 498.04
W.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

79. 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 2009-10
Average Finished Inventory 4351.265 8795.65 11532.51 10332.275 7251.50
Cost of Goods Sold 70.81 84.71 188.63 81.05 39.632
Finished Goods Conversion 61 days 103 days 61 days 127 days 182 days
Period
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

80. 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: 11
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
R.M. Conversion Period 19 days 18 days 16 days 18 days 24 days
W.I.P. Conversion Period 8 days 5 days 4 days 5 days 2 days
F.G. Conversion Period 61 days 103 days 61 days 127 days 182 days
Inventory Conversion 88 days 126 days 81 days 150 days 208 days
Period
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

81. ratio is 137 days which shows that in this year huge amount of profit the
company has earned. So in this year the profit is very high as compared to
other year. But in 2008-2009 the ratio is 109 days which is very huge because
the finished goods conversion period is huge. And so the profit also increased
by approx Rs. 15000 (in lacks).
65
 Various Inventory Ratios:
A. Total Investment in Inventory
B. Total Inventory Turnover Ratio
C. Work in Process Turnover Ratio
D. Finished Goods Turnover Ratio
A. Total Investment in Inventory:
TABLE NO: 12
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Inventory 26957.87 38846.52 38599.79 43075.71 40503.38
(in lakhs)
GRAPH NO: 6
50000
40000
30000
20000
10000
0
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Total Investment in Inventory
⇒ Interpretation:
The above chart indicates the amount of inventory with the company.
The lower the amount the higher will be the profit but higher the amount the
lower will be profit. There is inverse relation between profit and inventory.