LT-7

Tooba Riaz, Sherbano Syed , Ahmed Umar Abdullah

Report: Overview of the Supply Chain, Inventory, and Payment Systems for Fertilizer Distribution

Introduction

This report outlines the entire process of fertilizer production, distribution, transportation, and inventory
management based on a comprehensive flow diagram and additional details provided about the
company’s operations. The company operates through multiple plants, warehouses, and a distribution
network to ensure a streamlined flow of products to dealers, sub-dealers, farmers, and landlords. The
report also highlights the various systems in place, including transportation methods, payment procedures,
and security checks during delivery.

The company has four warehouses in the Lahore district The maximum capacity of each warehouse is
1000 tons. Criss-cross stacking is used to arrange the sacks in the warehouse; this helps to utilize space
efficiently. It also helps to easily count the number of bags at any given time. Tally sheets are used to
record when the product comes and goes out of the warehouse. There are “Pehchan stickers” on bags to
avoid tampering during the transportation process.

There are approximately 50-60 dealers in Lahore. There are a fixed number of dealers who are registered.
The product is given at fixed prices to dealers. They do not receive any commission. There are three
categories of dealers, A, B and C based on volume they purchase.

Category Volume Purchased (in metric tons)

A Above 2000

B Between 1000-2000

C Below 1000

Moreover, FFC also gives fertilizer directly to registered farmers.

Flow Diagram:
 1. Company Structure and Distribution Network

Manufacturing Plants and Warehouses

The company operates three key manufacturing plants, located in Goth Machi (Plant 1 and 2) and Mirpur
Mathelo(Plant 3). These plants supply products to the company’s warehouses. There are four warehouses
in the Lahore district, with a maximum capacity of 1000 tons each. The warehouses utilize criss-cross
stacking to efficiently store products and manage inventory. The company also uses tally sheets and
Pehchan stickers for tracking and tamper-proofing during transportation.

Dealer Network

The company works with approximately 50-60 dealers in Lahore. The dealers are classified into three
categories based on the volume of fertilizer they purchase:

● Category A: Purchases above 2000 metric tons.

● Category B: Purchases between 1000 and 2000 metric tons.
● Category C: Purchases below 1000 metric tons.
Registered farmers can also purchase fertilizers directly from the company. The pricing structure is fixed
for dealers, who do not receive a commission. This system ensures a standardized flow of goods across all
levels of the distribution network, preventing price disparities across different locations.

2. Transportation and Delivery Mechanisms

Transportation

The company uses a variety of transportation methods, including trucks, trollers, rickshaws, and loaders.
The method chosen depends on the quantity of goods and the delivery location. If dealers receive
products directly from the plants, the company covers the transportation cost. However, if products are
sourced from a warehouse, the dealer bears the transportation cost.

The distance between the manufacturing plants and Lahore warehouses plays a significant role in
determining transportation logistics. For instance:

● The Rahimyar Khan plant is approximately 600 km away.

● The Mirpur Mathelo plant is about 1200 km away.

Security and Verification

For security and verification purposes, each delivery requires an authority letter issued by the dealer. The
letter must be accompanied by a WhatsApp message containing the driver’s details (name, license
number, vehicle registration, etc.). If the driver’s information matches the details on the authority letter,
the company dispatches the delivery. A gate pass is issued for each delivery, ensuring that items leave the
warehouse securely.

Once the delivery leaves the warehouse or plant, the dealer assumes responsibility for transportation and
security, and the company takes no further responsibility.

3. Inventory and Stock Management

Inventory System
The company utilizes the First-In, First-Out (FIFO) inventory system, ensuring that older stock is
distributed before newer stock. This system helps maintain product quality and reduces the risk of stock
expiry. Additionally, the inventory system is updated automatically when products leave the warehouse.
The tally sheets are used to record the number of bags entering and exiting the warehouse, and the
Pehchan stickers ensure tamper-proof transportation.

Stock Replenishment

Dealers or suppliers need to monitor their stock levels carefully. When a drop in stock is detected, they
must formulate a demand draft or pay order to replenish their inventory. This process helps dealers
maintain sufficient stock to meet market demand.

4. Payment Methods and Procedures

Online Payment System

The company enforces a strict online payment system. All transactions are made through the company’s
official application. Only online bank payments are accepted, which automatically generate an invoice in
the company’s system. The company does not accept cash payments under any circumstances, promoting
transparency and security in financial transactions.

Alternative Payment Methods

In situations where online payments are not feasible, dealers can use a demand draft or pay order. Upon
receiving the draft or pay order, the dealer is issued an order card, which serves as proof of the order
placed. The stock count in the inventory system is updated once the order leaves the warehouse.

5. Pricing and Profitability

Uniform Pricing System

For certain products like Urea, the price is fixed across all regions, whether in Karachi or Khyber
Pakhtunkhwa (KPK). However, prices for other products, such as phosphates, boron, and micronutrients,
are determined based on the weight of the items. The uniform pricing system helps maintain fairness in
the market.
Dealer Profit Margins

Dealers typically earn a profit margin of 100-200 PKR per 50 kg bag of fertilizer. This profit margin
fluctuates depending on the type of fertilizer and the current market supply and demand dynamics.

Peak Demand Seasons

The company’s operations experience peak demand during two major agricultural seasons:

● Rabi season (October to November)

● Kharif season (November to January)

During these periods, fertilizers such as phosphates and potassium are in high demand. The demand for
Urea peaks during the late November to January period, making these months critical for the company’s
supply chain.

Conclusion

The company’s well-organized supply chain ensures the efficient distribution of fertilizers across various
regions. The combination of a robust transportation system, a FIFO-based inventory management system,
and a strict online payment method ensures transparency, security, and efficiency at every stage of the
distribution process. The classification of dealers and the fixed pricing system allow for a stable market
presence, while profitability remains consistent due to high demand during key agricultural seasons.

This structured system helps the company maintain product availability, reduce operational risks, and
meet market demand while promoting fairness and security in the entire supply chain process.