Inventory Management

Inventory Management

The inventory management is a very crucial part of the duties of officers in administration and management of an organization. It includes estimation of required goods and services, making of purchase orders, storage and management of procured goods, monitoring of contractors, using goods and services as per mandate and keeping proper records of the same. With the increase in competition, the organizations require reducing the cost of goods and services, accordingly the policies are framed to ensure proper procurement and utilization of the inventory.

Why Inventory Management?

It is well known that the holding inventory requires blocking or investing the cash in inventory items and thereafter its storage and record management are also time-consuming processes with involvement of resources. The companies are also considering Just In Time (JIT) method of inventory management with zero storage of the goods. The time of an inventory required to be managed after its procurement and before its fully utilization; require proper monitoring and keeping of records which are being seen as tedious operations. Further, after a long time of not being used, an item becomes part of the dead stock, again waste of time and resources to clear it. But proper inventory management helps an organization to grow with effective and efficient use of inventory whenever required by using managerial approaches.  

Shortage and Excess of Inventory:

Both the shortage and excess of inventory are harmful for the organization. The shortage of any store item can be a big problem whenever the item is required on urgent basis while the excess of any store item become headache due to improper management of the same. The excess inventory brings more risks of losses by theft, fire, or damages.

How much Inventory in one Order?

How much quantity of inventory should be ordered in one time, that depends entirely upon the utilization pattern of the inventory and also how much quantity of each item standing in the available stock. The concept known as Economic Order Quantity (EoQ) is used to measure the adequate and proper quantity for making the orders become economical to an organization. For this purpose, most of the organizations decide to use proper method for utilizing the existing inventory like First In First Out (FIFO) or Last In First Out (LIFO) etc.

Inventory Management in Government:

In Government, the finance department is entrusted to ensure optimum utilization of resources and on behalf of government, the rules are framed to be implemented by Department of Supplies and Disposal. In each government office, the Drawing and Disbursing Officer (DDO) is responsible to implement the rules, policies, and instructions issued by the finance department. Let’s understand the process of procurement in Government.

The Public Procurement Bill 2012 defines, “Procurement is acquisition of goods, works or services or any combination thereof, by purchase / lease / licence or otherwise, including award of Public Private Partnership projects, by a procuring entity, whether directly or through an agency with which a contract for procurement services is entered into.”

The procurement or purchase process includes

(i)      Estimation of Requirements,

(ii)     Taking Administrative and Financial Approvals,

(iii)     Formulating Technical and Commercial Specifications,

(iv)     Procuring goods / Works / Services through

(a) Offline Procurement

(1) Approved Sources: 

   The approved sources are those government organizations which have been notified as procurement channels on part of government. A DDO should firstly approach them to procure the required goods / works / services. The list of approved sources is available with directorate of supplies and disposal.

(2) Without Quotations: 

    As per rules, there are limits fixed for purchase without quotations. In Haryana, it is Rs. 10000 (Ten Thousands only) (detailed in Rule 7 provided in Appendix 15 of PFR Volume – II, revised on 2nd Sept 2019). Further, it is also provided that such purchases without quotation/tender can be upto Rs. 100000 (One Lac Rupees) in a year.

(3) With Quotations: 

   As per rules, there are limited fixed for purchases with quotation. In Haryana, there is threshold limit of Rs. 1 Lac above which it is mandatory to use e-procurement. For quotation purposes, in Haryana; whenever procurement is of the amount between Rs. 10,001 to Rs. 1 Lac; quotations are invited. Total sum of amount utilized through quotations cannot exceed Rs. 5 Lacs in a year. However, e-procurement can also be used in such circumstances if desired by the competent authorities.

(4) Manual Tender: 

    As per rules in Haryana State, the manual tender is now not to be used however, in case of quotations i.e. from 10,001 to 1,00,000; the authorities may decide to use this method of procurement to control the mal practices in procurement. Tender is a two tier process, i.e. Technical and Financial rounds made for the bidders. Firstly, the bids of the bidders are evaluated on technical specifications and only the short-listed bidders’ financial bids are evaluated for the award of the tender. The bidder with lowest quoted price is provided opportunity to supply the goods or complete the works / services as per the terms and conditions provided in the tender document. The negotiations (if required) are also made with the bidder (known as L-1, the bidder with lowest quoted price). Thereafter, the supplier is required to supply the goods within the delivery period mentioned in the supply order. In case of delay in supply, a penalty of 2% per month subject to maximum of 10% can be levied on the supplier which is also detailed in the terms and conditions. While computing the amount of penalty, the amount of taxes (in invoice) is not taken into consideration; in other words, the penalty is imposed on actual price without including taxes.

(5) e-Tender or e-Procurement: 

   In Haryana, If amount of procurement becomes equal or above 1 Lac, then e-procurement  or e-Tendering is mandatory.

(b) Online Procurement Government e-Marketplace (GeM): 

 For online procurement of goods / works / services, a portal was launched by the Government of India, known as www.gem.gov.in. The Directorate of Supplies and Disposal was replaced with GeM on 2nd April, 2019. This portal is used in central and state government offices mandatory to procure the goods however procuring authorities are responsible to ensure the procurement at reasonable prices. 

(v)    Receiving of Goods / Completion of Works / Monitoring of Services

(vi)  Acceptance of Goods / Works / Services {Using inspection methods}

(vii) Physical Verification of Goods {at Regular intervals, at the time of change in stock-in-charge}

In Government, the rules are provided at relevant websites of the Finance Department (for example, www.finhry.nic.in for Haryana Government). In Haryana, the rules are entitled as Punjab Financial Rules (PFR). In Central Government organizations, the rules are entitled as General Financial Rules (GFR). Second, most important rules are ‘Delegation of Financial Power Rules (DFPR); in PFR of Haryana Government the rules are detailed in part I of PFR. Thirdly, there are guidelines on procurement available on website of https://cvc.nic.in. Fourth, the officers should be well versed with the instructions of the Director General of Supplies and Disposal (DGS&D). Fifth, the manuals are also prepared by the departments for effective compliance of the procurement procedures, that should also be available with the DDO.

Stock Register for Inventory Management:

The organizations maintain a register for proper recording of stock transactions inside the organization. The register is known as stock register. The stock register is maintained by Store-in-charge and placed in store from where the goods are supplied to various users of the organization. The store-in-charges prepare the requirements of the stock as per the needs of the users and then put up the case for preparing purchase order.

In case of procurement in large amount, it is mandatory to formulate committees for preparing and finalization of the purchase using purchase orders. Higher the amount of purchase, higher the authorities are involved in procurement process. First of all, proper sanction (administrative and financial) is sought from the competent authorities. The sanction is provided as per the availability of the budget.

It is also ensured that the purchase should not be made by splitting the demand or requirement of the users. The purchase rules are compliance by formulating comparative statements wherever required and taking final approval before providing a purchase order. The supplier’s goods are inspected with the specifications, thereafter the bill is submitted for payment of the supplier.

Each and every voucher along with approvals and other relevant proofs is kept in record by the accounts department so that later on audit of the same can be done.

Use of Software:

The organizations are using specific software for proper management of Inventory. The use of software depends upon the needs of the organization. In most of the organizations, MS-Excel is used for keeping the records of inventory. In case of large organizations, Tally software or specifically designed Enterprise Resource Planning (ERP) or Systematic Application Product (SAP) are used for management of the inventory.

*Copyright © 2019 Dr. Lalit Kumar. All rights reserved.