Project Report on Inventory Control

RANBAXY LABS LTD.

SUMMER TRAINING REPORT ON Inventory Control Management and Material Requirement Planning of RANBAXY LABORATORIES LIMITED

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RANBAXY LABS LTD.

Table of contents Certificate Preface Acknowledgement Abstract CHAPTER 1 Introduction Objectives & Scope Company Profile Growth of Ranbaxy Life Of Ranbaxy Various divisions of Ranbaxy Various Departments Organization Chart Ranbaxy Manufacturing Plant Mohali

04 05 03 07 10 12 16 25 30 32 33 37 38

CHAPTER 2 Literature Review

39

CHAPTER 3 Research Methodology

41

CHAPTER4 Inventory Management Overview Of Inventories Overview Of Methods Ratios Control Manufacturing Material Resource Planning CHAPTER 5 Suggestions Conclusion CHAPTER 6 BIBLIOGRAPHY

42 43 48 64 65 80 83 84 85

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RANBAXY LABS LTD.

ABSTRACT A project work is a mandatory requirement for the Business Management Programme. This type of study aims at exposing the young prospective executive to the actual business world. This project gives me knowledge about the Inventory Control Management & Material Planning involve raising funds for the firm. It is concerned with formulation and designing of Inventory control structure. The most crucial decision of any company is involved in the formulation of its appropriate Inventory structure. The best design or structure of the Inventory system of a company helps the management to achieve its ultimate objectives of minimizing overall cost of capital, maximizing profitability and also maximizing the value of the firm. Organization. It is very effective way to judge a company’s cash flow prospects, as cash is like blood life for any company. The report initially begins with the company profile, followed by the detailed analysis of company, like businesses of the company, products offered by the company, financials of the company, etc The report involves a lot of research to understand what exactly Inventory control system of the company should be. Thats , why companies require appropriate inventory structure. The purpose is to develop an action plan that creates such a inventory structure that will upgrades and standardize the quality of business analysis.

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RANBAXY LABS LTD. INTRODUCTION

Pharmaceutical are high technology, high value added products and are highly traded in International markets. The pharmaceutical industry satisfies a basic human need of health, the Demand for products is on increase. This industry is passing through one of its more dynamic Times due to the ever changing demands of the market and the enormous changes taking place as regards to the size and constituents of the industry as many industries are more concentrating their focus on manufacturing of generic drugs which increases their profits without incurring any operational costs. Inventory forms a substantial part of current assets for any manufacturing organization and includes raw materials, stores and spares, work-in-progress and finished good. Maintaining an inventory is absolutely essential for most companies for five main reasons: •

Avoiding lost scale

•

Gaining quantity discounts

•

Reducing order cost

•

Achieving efficient production runs and

•

Reducing the risk of the production shortage.

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RANBAXY LABS LTD. Public Company Incorporated: 1962 Employees: 6,797 Sales: Rs.1.18 billion (2004) Stock Exchanges: India Ticker Symbol: 500359.BO NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325411 Medicinal and Botanical Manufacturing; 325620 Toilet Preparation Manufacturing Ranbaxy Laboratories Ltd. is the largest pharmaceutical company in India, and one of the world's top 100 pharmaceutical companies. Long a specialist in the preparation of generic drugs, Ranbaxy is also one of the world's top 10 in that pharmaceutical category as well. Yet, with India's agreement to apply international patent law at the beginning of 2005, Ranbaxy has begun converting itself into a full-fledged research-based pharmaceutical company. A major part of this effort has been the establishment of the company's own research and development center, which has enabled the company to begin to enter the new chemical entities (NCE) and novel drug delivery systems (NDDS) markets. In the mid-2000s, the company had a number of NCEs in progress, and had already launched its first NDDS product, a single daily dosage formulation of ciprofloxacin. Ranbaxy is a truly global operation, producing its pharmaceutical preparations in manufacturing facilities in seven countries, supported by sales and marketing subsidiaries in 44 countries, reaching more than 100 countries throughout the world. The United States, which alone accounts for nearly half of all pharmaceutical sales in the world, is the company's largest international market, representing more than 40 percent of group sales. In Europe, the company's purchase of RPG (Aventis) S.A. makes it the largest generics producer in that market. The company is also a leading generics producer in the United Kingdom and Germany and elsewhere in Europe. European sales added 16 percent to the company's sales in 2004. Ranbaxy's other major markets include Brazil, Russia, and China, as well as India, which together added 26 percent to the group's sales. Ranbaxy posted revenues of Rs.1.18 billion in 2004. The company, which remains controlled and led by the founding Singh family, is listed on the National Stock Exchange of India in Mumbai.

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RANBAXY LABS LTD. Objectives

Through the end of the 1980's, most software packages for distributors placed an emphasis on sales and accounting related modules. In the early 1990's, many distributors recognized that they needed help controlling and managing their largest asset, inventory. In response to this need, several computer software companies developed comprehensive inventory management modules and systems. These new packages include many new features, designed to help distributors effectively manage warehouse stock. But after implementing new software, many distributors don't feel that they have gained control of their inventory. These wholesalers continue to face many of the same challenges they experienced with their old systems: • • •

Stockouts and lost sales are common while warehouses are bulging with inventory On-hand and available-for-sale quantities in their computer systems aren't accurate The return on investment from inventory is not satisfactory

In some cases, the problem lies in the computer software. Some packages still do not have the necessary capabilities for effective inventory management. In other situations, a distributor is using a software package that is too complicated. His buyers don't have the knowledge, time, and/or skills to take advantage of the system's capabilities. But the most common reason distributors do not achieve their inventory management goals has nothing to do with the computer system they utilize. Despite what many data processing salespeople will tell you, computers do not provide solutions to inventory management problems. Computers are tools. They must be used in the proper business environment in order to work effectively. This environment is comprised of several elements. All of them must be present in order for your new inventory management system to live up to its potential. If your system is not performing up to this potential, be sure you have

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RANBAXY LABS LTD. implemented each of the following characteristics of good inventory management: 1. Protect your company against theft - Make sure that the only people in your warehouse belong in your warehouse. Pilferage is a larger problem than most distributors realize. 2. Establish an approved stock list for each warehouse - Most dead inventory is "D.O.A" (dead on arrival). Order only the amount of non-stock or special order items that your customer has committed to buy. Before adding an item to inventory, try to get a purchase commitment from your customer. If this is not possible, inform the salesperson who requests the item that he or she is personally responsible for half the carrying cost of any part of the initial shipment that isn't sold within nine months. 3. Assign and use bin locations - Assign primary and surplus bin locations for every stocked item. All picking and receiving documents should list the primary bin location (in either characters or a bar code). With correct bin locations on documents, order picking is probably the least complicated job in your warehouse. Assign inexperienced people to this task and your most experienced warehouse workers to receiving inventory and stock management. 4. Record all material leaving your warehouse - There should be appropriate paperwork for every type of stock withdrawal. Under no circumstances should material leave the warehouse without being entered in the computer. Eliminate "no charge/no paperwork" material swaps. Product samples should be charged to a salesperson's account until they are either returned to stock or charged to the customer. 5. Process paperwork in a timely manner - All printed picking documents should be filled by the end of the day. Stock receipts should be put away and entered in the computer system within 24 hours of arrival. 6. Set appropriate objectives for your buyers - Buyers should be judged and rewarded based on the customer service level, inventory turns, and return on investment for the product lines for which they are responsible. 7. Make sure every employee is aware of the cost of bad inventory management - Inventory loss through theft, breakage, or loss must be paid for with net profit dollars. If your net profit before 7

RANBAXY LABS LTD. taxes is 4%, it takes Rs.2,500 in new sales to make up for a Rs.100 merchandise loss! 8. Ensure that stock balances are accurate and will remain accurate - Implement a comprehensive cycle counting program. A good cycle counting program can replace your traditional year-end physical inventory. 9. Determine the most advantageous replenishment path for each item in each warehouse - Assign one of these "paths" to each item in each warehouse: 1. Distributive purchasing - The warehouse replenishes stock with a purchase order issued directly to the vendor 2. Central Warehousing - The stock of one warehouse is replenished with a stock transfer from a central warehouse 3. Cooperative Purchasing - Several branches "pool" their needs and issue one vendor purchase order in order to meet the vendor minimum order within a reasonable amount of time 10.Specify guidelines for setting the reorder method an other purchasing parameters to maximize inventory turns and minimize stockouts: 1. Minimum/Maximum quantities 2. Economic order quantities 3. Order up to a specific stock level 4. Safety stock quantities 5. Preseason buys 11.Document replenishment procedures: 1. Line buys 2. Non-stock items 3. Price-break purchasing 4. Preseason buys 5. Importing material 12.Establish customer service, inventory turnover, and return on investment goals for the following 24 months for each branch and major product line - After each month end close, compare the goals to the actual results. 13.Initiate an on-going dead stock and excess inventory control program - Excess inventory is usually considered to be any quantity of a product greater than a 12 month supply. 1. Transfer excess stock to a branch that needs the material 2. Return the stock to the vendor 8

RANBAXY LABS LTD. 3. Lower the price of items with excess inventory 4. Substitute surplus inventory for lower cost items that are still popular 5. Offer special commissions for the sale of surplus merchandise 6. Sell the excess inventory to a competitor 7. Donate excess stock to a non-profit agency 8. Throw it out, take the "write-off" for your financial statement, and free up room in your warehouse 14.Make inventory management considerations part of corporate strategic planning.

Scope The scope of the inventory managements is broad, as it considers the entire flow of materials in and out of an organization. Its scope can be viewed in two contexts•

Trouble avoidance and

•

Opportunistic.

Manager in the organization are worried if the materials function does not perform well. The proper management of materials leads to reduction in production costs and inventory levels, coupled with an increase in the efficiency of production. Therefore, materials management can be viewed as an opportunistic tool to improve a firm’s profits.

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RANBAXY LABS LTD.

Company Profile Ranbaxy Laboratories Limited, India's largest pharmaceutical company, is an integrated, research based, international pharmaceutical company, producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies. Ranked 8th amongst the global generic pharmaceutical companies, Ranbaxy today has a presence in 23 of the top 25 pharmaceutical markets of the world. The Company has a global footprint in 49 countries, world-class manufacturing facilities in 11 countries and serves customers in over 125 countries. In June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse. The combined entity now ranks among the top 15 pharmaceutical companies, globally. The transformational deal will place Ranbaxy in a higher growth trajectory and it will emerge stronger in terms of its global reach and in its capabilities in drug development and manufacturing.

Vision & Aspirations Ranbaxy is driven by its vision to achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets. The Company aspires to be amongst the Top 5 global generic players and aims at achieving global sales of US Rs.5 Bn by 2012.

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RANBAXY LABS LTD.

Financials Ranbaxy was incorporated in 1961 and went public in 1973. For the year 2008, the Company recorded Global Sales of US Rs. 1,682 Mn, reflecting a growth of 4%. The Company has a balanced mix of revenues from emerging and developed markets that contribute 54% and 39% respectively. In 2008, North America, the Company's largest market contributed sales of US Rs. 449 Mn, followed by Europe garnering US Rs. 330 Mn. Business in Asia is going strong with India clocking sales of around US Rs. 300 Mn with market leadership in several business segments, backed by strong brandbuilding skills.

Strategy Ranbaxy is focused on increasing the momentum in the generics business in its key markets through organic and inorganic growth routes. Growth is well spread across geographies with focus on emerging markets The Company continues to evaluate acquisition opportunities in India, emerging and developed markets to strengthen its business and competitiveness. Ranbaxy has forayed into high growth potential segments like Biologics, Oncology and injectables. These new growth areas will add significant depth to the existing product pipeline.

Research & Development

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RANBAXY LABS LTD. Ranbaxy views its R&D capabilities as a vital component of its business strategy that will provide a sustainable, long-term competitive advantage. The Company has a pool of over 1,200 scientists engaged in path-breaking research. Ranbaxy is among the few Indian pharmaceutical companies in India to have started its research program in the late 70's, in support of its global ambitions. A first-of-its-kind world class R&D centre was commissioned in 1994. Today, the Company's multidisciplinary R&D centre at Gurgaon, in India, houses dedicated facilities for generics research and innovative research. The robust R&D environment for both drug discovery and development reflects the Company's commitment to be a leader in the generics space offering value added formulations based on its Novel Drug Delivery System (NDDS) and New Chemical Entity (NCE) research capabilities. The new drug research areas at Ranbaxy include anti-infectives, inflammatory / respiratory, metabolic diseases, oncology, urology and anti-malaria therapies. Presently, the Company has 8-10 programs including one Anti-malaria combination drug, Arterolane maleate + Piperaquine phosphate for which Phase-III clinical trials have commenced in India, Bangladesh and Thailand.. The Company has signed collaborative research programs with GSK and Merck. NDDS focus is mainly on the development of NDA/ANDAs of oral controlled-release products for the regulated markets. Ranbaxy’s first significant international success using the NDDS technology platform came in September 1999, when the Company outlicensed its first once-a-day formulation to a multinational company.

People The Company’s business philosophy based on delivering value to its stakeholders constantly inspires its people to innovate, achieve excellence and set new global benchmarks. Driven by the passion of its over 12,000 strong multicultural workforce comprising over 50 nationalities, Ranbaxy continues to aggressively pursue its mission to become a Research-based International Pharmaceutical Company and attain a true global leadership position.

Board of Directors

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RANBAXY LABS LTD. Board

of

Directors

At the helm of the entire operations is the experience and able direction of the people who make it all happen. Ranbaxy acknowledges their inspiring stewardship and indefatigable work.

Mr. Atul Sobti Chief Executive Officer & Managing Director

Mr. Takashi Shoda Non Executive & Non Independent Director

Dr. Tsutomu Une Chairman Non Executive & Non Independent Director

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RANBAXY LABS LTD.

Dr. Anthony H. Wild Independent Director

Mr. Rajesh V. Shah Independent Director

Mr. Akihiro Watanabe Independent Director

Code of Conduct for Board of Directors : Download PDF

Executive Team The Executive Committee is an apex body at Ranbaxy, that oversees Company's global functioning. The group deliberates on important Company issues steering it in the right direction. The Committee ensures that all decisions are taken in the best interest of the organisation. This forum brings in different perspectives on a subject. Issues are discussed, analysed and concluded through exchange of ideas, reflecting the Company's philosophy of participative management. It also facilitates the Company's compliance with the best standards of Corporate Governance.

Mr. Atul Sobti Chief Executive Officer & Managing Director

Mr. Ramesh L. Adige President, Corporate Affairs & Global Corporate Communications

Mr. Dipak Chattaraj President, Corporate Development & Strategy

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RANBAXY LABS LTD.

Dr. Sudarshan K. Arora President, R&D (Generics, NDDS & Drug Development)

Mr. Omesh Sethi Chief Financial Officer

Mr. Arun Sawhney President, API GBU, Global Manufacturing & Supply Chain

Mr. Bhagwat Yagnik Head – Global Human Resources

Mr. David Briskman Chief Information Officer

Dr. T G Chandrashekhar Vice President, Global Quality & Analytical Research

Worldwide Operations Global Pharma Companies are experiencing an ever changing landscape ripe with challenges and opportunities. In this challenging environment Ranbaxy is enhancing its reach leveraging its competitive advantages to become a top global player. Driven by innovation and speed to market we focus on delivering world-class generics at an affordable price. Our unwavering determination to achieve excellence leads us to new global benchmarks. Our people have consistently risen above all challenges maximized opportunities and positioned Ranbaxy as a leader in the global generics space. Ranbaxy’s global footprint extends to 49 countries embracing different locales and cultures to form a family of 51 nationalities with an intellectual pool of some of the best minds in the world.

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RANBAXY LABS LTD.

Africa

Asia Pacific

CIS

Europe

Global API

Global Consumer Healthcare

India

Latin America

Middle East and Sri Lanka

North America

Manufacturing Facility organisations’ capabilities and intent are strongly reflected in the product it manufactures. In other words, the manufacturing competencies and facilities echo truly, the R&D extent and the ability to implement it for the best of the market it targets. RANBAXY® possesses the manufacturing strengths that have established it as a producer of world-class generics, branded generics and a major supplier of its range of Active Pharmaceutical Ingredients for pharmaceutical products of companies worldwide.

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RANBAXY LABS LTD.

Ranbaxy has world-class manufacturing facilities in 11 countries namely Brazil, China, Ireland, India, Japan, Malaysia, Nigeria, Romania, South Africa, USA and Vietnam. Its overseas facilities are designed to cater to the requirements of the local regulatory bodies of that country while the Indian facilities meet the requirements of all International Regulatory Agencies. Some of the agencies such as MCA-UK, MCCSouth Africa, FDA-USA and TGA-Australia, have audited Ranbaxy’s manufacturing facilities for the compliance with international Good Manufacturing Practices and have registered its products for safety, quality and efficacy.

Products Using the finest R&D and Manufacturing facilities, Ranbaxy Laboratories Limited manufacture and markets generic pharmaceuticals, value added generic pharmaceuticals, branded generics, active Pharmaceuticals (API) and intermediates. The Company remains focused on ascending the value chain in the marketing of pharmaceutical substances and is determined to bring in increased revenues from dosage forms sales. Ranbaxy's diverse product basket of over 5,000 SKUs available in over 125 countries worldwide, encompasses a wide therapeutic mix covering a majority of the chronic and acute segments. Healthcare trends project that the chronic treatment segments will outpace the acute treatment segments, primarily driven by a growing aging population and dominance of lifestyle diseases. Our robust performance in Cardiovasculars, Central 17

RANBAXY LABS LTD. Nervous System, Respiratory, Dermatology, Orthopedics, Nutritionals and Urology segments, clearly indicates that the Company has strengthened its presence in the fastgrowing chronic and lifestyle disease segments.

Top

• • • • • • •

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Molecules

Simvastatin AmoxiClav Amoxycillin Ciprofloxacin Ketorolac Omeprazole

and and and

Potassium Isotretinoin Combinations Combinations Tromethamine Combinations 18

RANBAXY LABS LTD.

• Cefuroxime • • Loratadine and • • • Diclofenac and • • • Cefpodoxime • • Atorvastatin and • • Ofloxacin and Combinations

Axetil Cephalexin Combinations Clarithromycin Ginseng+Vitamins Combinations Ranitidine Cefaclor Proxetil Efavirenz Combinations Fenofibrate

Growth of Ranbaxy Through Decades 1961 

Company Incorporated.

1973 

Ranbaxy goes Public. A multipurpose chemical plant is setup for the manufacture of API’S at Mohali in India.

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RANBAXY LABS LTD. 1977 

Ranbaxy’s first joint venture in Lagos (Nigeria) is setup.

1983 

A modern dosage forms facility at Dewas (MP) in India goes on stream.

1985 

Ranbaxy Research Foundation is established. Stancare, Ranbaxy’s second pharmaceutical marketing division, starts functioning.

1987 

Production start-up at the modern API’s plant at Toansa (Punjab), makes Ranbaxy the Country’s largest manufacturer of antibiotics / antibacterial.

1988 

Ranbaxy Toansa plant gets US FDA approval.

1990 

Ranbaxy is granted US patent for Doxycycline.

1991 

New state-of-the-art facility for cephlosporins set up at Mohali-

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RANBAXY LABS LTD.

1993 

US patent granted cephalosporins.

for

Company

an

enters

into

agreement to set up a joint venture

in

China

Ranbaxy

(Guangzhou China) Limited.

Ranbaxy

enunciates

its

corporate mission to become a research

based

international

pharmaceutical Company.

1994 

The new Research Center at Gurgoan, becomes fully operational Established Regional Headquaters in London (UK) and Releigh (USA). The Fermentation pilot plant at Paonta Sahib is commissioned.

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RANBAXY LABS LTD. Ranbaxy’s GDR listed in Luxembourgh Stock Exchange. 1995 

Acquisition of ohm Laboratories, a manufacturing facility in the US. Inauguration of FDA approved, state-of-theart new manufacturing wing, at Ranbaxy’s US subsidiary ohm Laboratories Inc.

1997 

Ranbaxy Laboratories limited crosses a sales turnover of Rs. 10,000 million, with its exports reaching an all time high of Rs. 5,000 million.

1998 

Ranbaxy enters USA, world’s largest pharmaceuticals market, with products under its own name. Ranbaxy field its first Investigational New Drug (IND) application with the Drugs Controller General of India (DCGI) for approvals to conduct phase I clinical Trials.

1999 

DCGI grants approval to conduct Phase I clinical Trials

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RANBAXY LABS LTD. for RBX 2258, and the Trials commence from June 10, 1999. Bayer AG, Germany and Ranbaxy sign an agreement where Bayer obtains exclusive development and worldwide marketing rights to an oral once daily formulation of Ciprofloxacin, originally developed by Ranbaxy. 2000 

Ranbaxy files IND Application for Asthma Molecule-RBX-4638 after successful completion of pre-clinical studies. Ranbaxy acquires Bayer’s Generics business (trading under the name of Basics) in Germany. Ranbaxy forays into Brazil, the largest pharmaceutical market in South America and achieves global scales of US Rs.2.5 million in this market.

2001 

2002 Receives

Ranbaxy took a significant step forward in Vietnam by initiating the setting up of a new manufacturing facility with an investment of US Rs.10 million.

approval from FDA to market Midazolam Hydrochloride Syrup 2 Mg base/ ml. Ranbaxy 23

RANBAXY LABS LTD. receives and approval from FDA to manufacture and market Cefpodoxime Proxetil for Oral Suspension, Lisinopril + Hydrochlorothiazide Tablets Us, Terazosin Hydrochloride Capsules and Amoxcillin Oral suspension USP.Heralding the company’s entry into the Indian OTC market. 2003 Ranbaxy received the economic times award for corporate excellence-for the company for year.ranbaxy signed an agreement toacquire RPG(aventis) SA along with its fully owned subsidiary,OPIH SARL,in france Ranbaxy launched its first range of herbal projects. 2005 Acquisition of additional stake in Ranbaxy Farmaceutica Ltda., Brazil Ranbaxy announced the acquisition of Be-Tabs Pharmaceuticals (Pty) Limited 2008 Acquired by the Japanese giant, the Rs.9.62 billion Daiichi Sankyo, ranked No. 3 in Japan

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RANBAXY LABS LTD.

Life at Ranbaxy

A career at Ranbaxy means an opportunity for ample learning & growth. It offers avenues to work across the globe along side the finest minds. The Company offers a challenging assignment, a world class working environment, professional management, competitive salaries, stock options along with exceptional rewards. If you have an appetite for challenges, we have an exciting career for you

Opportunities

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RANBAXY LABS LTD. The global spread of Ranbaxy and the blazing growth in business provides ample opportunities for our employees to build careers in various fields. Opportunities have never been a constraint for the deserving. We believe in employee growth that goes beyond vertical movements and change in designations. Potential and performance are the pillars of career progression at Ranbaxy. A robust development process supports this. Our managers will generally have the opportunity to live and work in different countries; such international experience will help them better understand our complex business and grow both personally and professionally.

Salary and Benefits Salaries and other benefits in Ranbaxy are comparable with the best in the industry and one can expect to be rewarded highly if the performance is consistently outstanding.

Group Life Insurance, Medical Insurance and Pension plans are a few examples of the benefits we provide to our employees and their dependents with adequate financial protection on long term basis.

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RANBAXY LABS LTD.

VARIOUS DIVISION OF RANBAXY LABORATORIES



Chemical Division



Diagnostic Division



Stan care Division



Curradia Division



International Division



Pharmaceutical Division



Technical Division



Corporate Division



Animal Health Care Division

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RANBAXY LABS LTD.

VARIOUS DEPARTMENTS Human Resource Department The basic function of the human resource department in the modern corporate world is knowledge management. The HR department strives to maintain cohesiveness among employees. It also ensures interdepartmental cooperation in achieving targets. The appraisal system is also taken care by this department. The HR department delves deep into the employee’s psyche to analyze the positives and negatives of each employee, so that a proper system of delegation and / or empowerment can be evolved.

Finance Department The finance department takes care of the regular financial needs of the company it ensures proper allocation of funds and takes care of the working capital requirements. It verifies capital raised by different departments and sends them for approval to the higher authorities.

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RANBAXY LABS LTD.

Stores Department The function of this department is to provide adequate and proper storage and preservation of various items to meet the demand of various other departments by proper issues and maintaining accounts of consumption. It also keeps a track of stock accumulation and abnormal consumption. Erection and Fabrication Department As the name suggests, this department identifies new projects and helps in erecting them. This department also undertakes major modifications of equipment.

ERP Department ERP department helps to integrate the entire enterprise starting from the supplier to the customer, covering financial and human resources. This will enable the enterprise to increase productivity by reducing costs. It also ensures a single solution to the information needs of the whole organization.

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RANBAXY LABS LTD.

Production Department As a part of their on going commitment to produce hi-tech quality drugs and pharmaceuticals that take care of the specific needs of markets around the world, Ranbaxy Laboratories Limited has increased the investment in the production department. It is the most important department of the company and has the following objectives:  Improving volume of production.  Reducing rejection rate.  Maintaining rework rate.

Engineering Department This department undertakes building, construction and maintenance. Maintaining service facilities such as water, gas, heating, ventilation, air conditioning, painting and plumbing are some of the other areas dealt by this department. This department also helps in maintaining electrical equipment such as generators, transformers, telephone system and electrical installation.

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RANBAXY LABS LTD.

Purchase Department The purchase department provides material to the factory without which the wheels of machines cannot move. The various functions performed by this department include:  Securing good vendor performance, including prompt deliveries of supplies of acceptable qualities.



To develop satisfactory sources of supply and

maintaining good relationships with the suppliers. 

To pay reasonably low prices.

Quality Control/Quality Assurance Department The purpose of QC & QA departments is to ensure that the desired quality standard is achieved. It also ensures that the processing or fabrication of material conforms to the specific characteristics selected, to assure that the resulting product will in fact perform its intended function.

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RANBAXY LABS LTD.

ORGANISATION CHART

Senior VP

VP

Director

Director

Manufacturing GM

Director

Director Special projects

QC GM Finance

GM HR

GM E&F

Production SM

SM

SM

SM

SM

SM

SM

SM

SM

SM

GM InfoTech SM PP

SM M M

M

M

VP GM SM M

Vice President General Manager Senior Manager Manager

QC HR E&F PP ERP

Quality Control Human Resource Engineering & Facilities Production Planning Enterprise Resource Planning

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RANBAXY LABS LTD.

RANBAXY MANUFACTURING PLANT MOHALI

In the chemical division, various bulk drugs are manufactured. The chemical division has three units in Punjab. One is located at Toansa, two are located at Mohali and one unit is located at Dewas near Indore in Madhya Pradesh, where Ciprofloxacine is manufactured. In the plant of the chemical division, various drugs like Antibiotics, Anti-malarial, Anti-bacterial and Anti-ulcer are manufactured. Two plants at Mohali are generally known as Mohali-I and Mohali-II. The Mohali –I plant started functioning in 1974, the Mohali-II plant started functioning in1991, the Toansa plant started functioning in 1992 and the Dewas plant started functioning in 1999. Various plant heads independently manage all these plants In each unit, separate facilities with respect to the manufacture of drugs, along with their manufacturing areas have been provided. This is required to reduce the chances of any cross contamination under the drug laws and to comply with good manufacturing practices.

MOHALI I 33

RANBAXY LABS LTD.

Mohali-I plant is the oldest plant and most of the drugs were first introduced here for commercial production, before shifting them to other locations with better facilities from FDA point of view. This plant is so designed that the title modification of different drugs can be manufactured. The plant basically deals mostly with the manufacturing of Active Pharmaceutical Ingredients (API). This Plant is divided into two plant areas A10 and A11. MOHALI II At Mohali –II plants, separate blocks have been provided for the preparation of each drug .The Toansa, Mohali-II and Dewas plants are planned in such a way that their system, facilities, manufacturing practices and standards meet the requirements of FDA. Mohali II, Plant also mainly in the manufacturing of Active Pharmaceutical Ingredients (API). The Plant is divided into two plant areas A8 and A9.

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RANBAXY LABS LTD.

Literature review Inventory Control and Management, 2nd Edition:

Author description:

Donald Waters has degrees from the Universities of Sussex, London and Strathclyde. He worked for a variety of organizations in the UK before moving to Canada to become Professor of Operations Management at the University of Calgary. In 1997 he returned to the UK to become Chief Executive of Richmond, Parkes and Wright, whose main interests are in management research, education and training. Dr. Waters continues to work for organisations around the world, using his specialist knowledge of operations and supply chains. He has written a number of successful books in these areas.

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RANBAXY LABS LTD.

Description: Holding stock is expensive - problems of inventory control almost universal. Over the past decade organisations have been trying to improve customer service while lowering stocks and increasing the speed of material flow through their supply chains. This completely updated new edition reviews current thinking on inventory management. It emphasises the growth of e-commerce, and the trend away from classical models based on economic order quantities and towards dependent demand systems. The author sets inventory management in its broader context, discussing the important trends and pressures for change. The main approaches are discussed and evaluated, giving the reader a broad appreciation of the principles involved. Some quantitative ideas are developed in the text, but the author has kept the mathematics to a minimum, focusing on practical examples and calculations on spreadsheets. Assuming no prior knowledge of the subject area, this book provides students of management, operations management, management science and production - as well as practitioners- with an indispensable guide to inventory control. Supplementary material for lecturers adopting Inventory Control and Management is available

Methodology 36

RANBAXY LABS LTD. The methodology adopted for the study was: •

Familiarization, examination and evaluation of the procedures relating to

preparation of working capital sheets and from DRC. •

Collection of relevant data from the company records and cross checking of

this data. •

Calculations of parameters and norms, as also their financial implications. Broadly the data were collected for the report on the project work has been through the primary and secondary sources. The primary data is collected by various approaches so as to give a precise, accurate, realistic and relevant data. The main goal in the mind while gathering primary data was investigation and observation. The ends were thus achieved by a direct approach and personal observation from the officials of the company; heads were thus achieved by a direct approach and personal investigation from the officials of the company. The other staff members and the employees were interviewed for the sake of maintaining reasonable standard of accuracy. The secondary data as it has always been important for the completion of any report provides a reliable, suitable equate and specific knowledge. The Standard cost reports, DRC reports, working sheets provide the knowledge and information regarding the relevant subjects. The valuable cooperation and continued support extended by the associates, head of the department, division and staff members contributed a lot to fulfill the

requirement in the collection of data in order to present a complete report on the project wo

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RANBAXY LABS LTD.

Inventory Management

‘Inventory Management is very important for smooth running of business In relation to Ranbaxy, (C.M.) inventory management starts with proper production planning as discussed earlier.

Financial Concern Regarding Inventory

¤

At outsource location

¤

To ensure continuous supply of raw materials.

¤

Avoid overstocking and under stocking.

¤

Maintain investments in inventory at optimum level.

¤

To keep material cost under control.

¤

Analyze the causes of variances.

38

RANBAXY LABS LTD.

Overview of Inventories Perpetual Inventory System

Perpetual inventory system updates inventory accounts after each purchase or sale. Inventory subsidiary ledger is updated after each transaction. Inventory quantities are updated continuously.

Periodic Inventory System Periodic inventory system records inventory purchase or sale in "Purchases" account. "Purchases" account is updated continuously, however, "Inventory" account is updated on a periodic basis, at the end of each accounting period (e.g., monthly, quarterly) Inventory subsidiary ledger is not updated after each purchase or sale of inventory. Inventory quantities are not updated continuously. Inventory quantities are updated on a periodic basis.

39

RANBAXY LABS LTD.

Example 1 (Company A) : Purchased 1,000 units of merchandise at Rs.30 per unit. Under Perpetual inventory system Debit Merchandise Inventory

Credit

30,000

Accounts payable

30,000

Under Periodic inventory system Debit Purchases Accounts payable

Credit

30,000 30,000

Under periodic inventory system, all purchases during the accounting period are recorded in the "Purchases" account.

40

RANBAXY LABS LTD.

: Sold 200 units of merchandise at Rs.50 per unit on credit. Under Perpetual inventory system Debit Accounts Receivable

10,000

Sales

10,000

Debit Cost of goods sold Merchandise inventory

Credit

Credit

6,000 6,000

Under perpetual inventory system, changes in merchandise inventory account are recorded after each transaction.

41

RANBAXY LABS LTD.

Under Periodic inventory system Debit Accounts Receivable

Credit

10,000

Sales

10,000

Under periodic inventory system, the following journal entry is recorded at the end of accounting period. Debit Merchandise Inventory Purchases

Credit

24,000 24,000

Quantity of merchandise inventory = 1,000 units purchased - 200 units sold = 800 units left

42

RANBAXY LABS LTD.

Cost of merchandise inventory = 800 units x Rs.30 per unit cost = Rs.24,000 Debit Cost of goods sold

Credit

6,000

Purchases

6,000

Cost of goods sold = Total purchases

- Ending balance of merchandise inventory = 1,000 units x Rs.30 per unit cost - 800 units xRs.30 per unit cost = Rs.30,000 - Rs.24,000 = Rs.6,000

Ending Inventory and Cost of goods sold (Company A)

Ending inventory = Beginning inventory + Purchases during the period - Cost of goods sold = Rs.0 + Rs.30,000 - Rs.6,000 = Rs.24,000 Cost of goods sold = Beginning inventory + Purchases during the period - Ending inventory = Rs.0 + Rs.30,000 - Rs.24,000 = Rs.6,000

Inventories Methods 43

RANBAXY LABS LTD.

Inventory Valuation Methods Inventory valuation example 1 FIFO example 1 LIFO example 1 First-in First-out (FIFO) Under FIFO, it is assumed that items purchased first are sold first. Last-in First-out (LIFO) Under LIFO, it is assumed that items purchased last are sold first. Perpetual Inventory System Perpetual inventory system updates inventory accounts after each purchase or sale. Inventory subsidiary ledger is updated after each transaction. Inventory quantities are updated continuously. Periodic Inventory System Periodic inventory system records inventory purchase or sale in "Purchases" account. "Purchases" account is updated continuously, however, "Inventory" account is updated on a periodic basis, at the end of each accounting period (e.g., monthly, quarterly) Inventory subsidiary ledger is not updated after each purchase or sale of inventory. Inventory quantities are not updated continuously. Inventory quantities are updated on a periodic basis.

44

RANBAXY LABS LTD.

Example 1 (Company A) Inventory transactions in May 2006. Units Date Transactions Purchased (Sold) Beginning May 1 700 Inventory May 3 Purchase 100 May 8 Sale (500) May 15 Purchase 600 May 19 Purchase 200 May 25 Sale (400) May 27 Sale (100) Ending May 31 Inventory

Unit Cost

Inventory Units

Rs.10

700

Rs.12 ?? Rs.14 Rs.15 ?? ??

800 300 900 1,100 700 600

??

Ending Inventory = Beginning Inventory + Units Purchased - Units Sold = 700 + 900 - 1,000 = 600 units

45

RANBAXY LABS LTD.

Example 1-1 (Perpetual Recording, FIFO Valuation) FIFO valuation under perpetual inventory system Date

Transactions

May 1 May 3 May 8 May 15 May 19 May 25 May 27 May 31

Beginning Inventory Purchase Sale (*1) Purchase Purchase Sale (*2) Sale (*3) Ending Inventory

Units Sold

Unit Cost

Inventory Units

700

Rs.10

700

100 (500) 600 200 (400) (100)

Rs.12 ?? Rs.14 Rs.15 ?? ??

800 300 900 1,100 700 600

??

(*1) 500 units sold = 700 units from beginning inventory of at Rs.10 unit cost. Cost of goods sold = 500xRs.10 = Rs.5,000

46

RANBAXY LABS LTD.

(*2) 400 units sold = 200 units from beginning inventory at Rs.10 unit cost + 100 units from May 3 purchases at Rs.12 unit cost + 100 units from May 15 purchases at Rs.14 unit cost Cost of goods sold = 200xRs.10 + 100xRs.12 + 100xRs.14 = Rs.2,000 + Rs.1,200 + Rs.1,400 = Rs.4,600 (*3) 100 units sold = 100 units from May 15 purchases at Rs.14 unit cost Cost of goods sold = 100xRs.14 = Rs.1,400 Total cost of goods sold = 500xRs.10 + 200xRs.10 + 100xRs.12 + 100xRs.14 + 100xRs.14 = Rs.5,000 + Rs.2,000 + Rs.1,200 + Rs.1,400 + Rs.1,400 = Rs.5,000 + Rs.4,600 + Rs.1,400 = Rs.11,000 Cost of ending inventory = Beginning inventory + Cost of purchases - Cost of goods sold = Rs.7,000 + (100xRs.12 + 600xRs.14 + 200xRs.15) Rs.11,000 = Rs.7,000 + Rs.12,600 - Rs.11,000 = Rs.8,600 [Checking] Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units Cost of ending inventory 47

RANBAXY LABS LTD. = 400 x Rs.14 (May 15 purchase) + 200 x Rs.15 (May 19 purchase) = Rs.5,600 + Rs.3,000 = Rs.8,600

Example 1-2 (Perpetual Recording, LIFO Valuation) LIFO valuation under perpetual inventory system Date

Transactions

May 1 May 3 May 8 May 15 May 19 May 25 May 27 May 31

Beginning Inventory Purchase Sale (*1) Purchase Purchase Sale (*2) Sale (*3) Ending Inventory

Units Sold

Unit Cost

Inventory Units

700

Rs.10

700

100 (500) 600 200 (400) (100)

Rs.12 ?? Rs.14 Rs.15 ?? ??

800 300 900 1,100 700 600

??

(*1) 500 units sold = 100 units from May 3 purchases at Rs.12 unit cost = 400 units from beginning inventory at Rs.10 unit cost Cost of goods sold = 100xRs.12 + 400xRs.10 = Rs.1,200 + Rs.4,000 = Rs.5,200 (*2) 400 units sold = 200 units from May 19 purchases at Rs.15 unit cost + 200 units from May 15 purchases at Rs.14 unit cost 48

RANBAXY LABS LTD.

Cost of goods sold = 200xRs.15 + 200xRs.14 = Rs.3,000 + Rs.2,800 = Rs.5,800

(*3) 100 units sold = 100 units from May 15 purchases at Rs.14 unit cost Cost of goods sold = 100xRs.14 = Rs.1,400 Total cost of goods sold = 100xRs.12 + 400xRs.10 + 200xRs.15 + 200xRs.14 + 100xRs.14 = Rs.1,200 + Rs.4,000 + Rs.3,000 + Rs.2,800 + Rs.1,400 = Rs.5,200 + Rs.5,800 + Rs.1,400 = Rs.12,400 Cost of ending inventory = Beginning inventory + Cost of purchases - Cost of goods sold = Rs.7,000 + (100xRs.12 + 600xRs.14 + 200xRs.15) Rs.12,400 = Rs.7,000 + Rs.12,600 - Rs.12,400 = Rs.7,200 [Checking] Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units Cost of ending inventory = 300xRs.10 (beginning inventory) + 300xRs.14 (May 15 purchase) = Rs.3,000 + Rs.4,200 = Rs.7,200 Note: 400 units from beginning inventory were sold on May 8. 200 units from May 15 purchase were sold on May 25.

49

RANBAXY LABS LTD. 100 units from May 15 purchase were sold on May 27. 100 units from May 3 purchase were sold on May 8. 200 units from May 25 purchase were sold on May 25.

Example 1-3 (Periodic Recording, FIFO Valuation) FIFO valuation under periodic inventory system Date May 1 May 3 May 8 May 15 May 19 May 25 May 27 May 31

Transactions Beginning Inventory Purchase Sale (*1) Purchase Purchase Sale (*2) Sale (*3) Ending Inventory

Units Sold

Unit Cost

Inventory Units

700

Rs.10

700

100 (500) 600 200 (400) (100)

Rs.12 ?? Rs.14 Rs.15 ?? ??

800 300 900 1,100 700 600

??

Under periodic inventory system, cost of inventories is calculated at the end of each accounting period (on May 31 in this example). [May 31, 2006] Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units Using FIFO, units purchased first are assumed to be sold first. 1,000 units sold = 700 units from beginning inventory of at Rs.10 unit cost + 100 units from May 3 purchases at Rs.12 unit cost 50

RANBAXY LABS LTD. + 200 units from May 15 purchases at Rs.14 unit cost

Cost of goods sold = 700xRs.10 + 100xRs.12 + 200xRs.14 = Rs.7,000 + Rs.1,200 + Rs.2,800 = Rs.11,000 600 units of inventory left = 400 units from May 15 purchases at Rs.14 unit cost + 200 units from May 19 purchases at Rs.15 unit cost Cost of ending inventory = 400xRs.14 + 200xRs.15 = Rs.5,600 + Rs.3,000 = Rs.8,600

Example 1-4 (Periodic Recording, LIFO Valuation) LIFO valuation under periodic inventory system Date May 1 May 3 May 8 May 15 May 19 May 25 May 27 May 31

Transactions Beginning Inventory Purchase Sale (*1) Purchase Purchase Sale (*2) Sale (*3) Ending

Units Sold

Unit Cost

Inventory Units

700

Rs.10

700

100 (500) 600 200 (400) (100)

Rs.12 ?? Rs.14 Rs.15 ?? ?? ??

800 300 900 1,100 700 600

51

RANBAXY LABS LTD. Inventory Under periodic inventory system, cost of inventories is calculated at the end of each accounting period (on May 31 in this example).

[May 31, 2006] Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units Using LIFO, units purchased last are assumed to be sold first. 1,000 = + + +

units sold 200 units from 600 units from 100 units from 100 units from

May 19 purchases at Rs.15 unit cost May 15 purchases at Rs.14 unit cost May 3 purchases at Rs.12 unit cost beginning inventory at Rs.10 unit cost

Cost of goods sold = 200xRs.15 + 600xRs.14 + 100xRs.12 + 100xRs.10 = Rs.3,000 + Rs.8,400 + Rs.1,200 + Rs.1,000 = Rs.13,600 600 units of inventory left = 600 units from beginning inventory at Rs.10 unit cost Cost of ending inventory = 600xRs.10 = Rs.6,000

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RANBAXY LABS LTD.

Example 1-5 (Perpetual Recording, Moving Average Valuation) Moving Average valuation under perpetual inventory system Moving Inventory Average Units Unit Cost

Date

Transactions

Units Sold

Unit Cost

May 1

Beginning Inventory

700

Rs.10

700

May 3

Purchase

100

Rs.12

800

May 8

Sale

(500)

??

300

May 15

Purchase

600

Rs.14

900

May 19

Purchase

200

Rs.15

1,100

May 25 May 27

Sale Sale Ending Inventory

(400) (100)

?? ??

700 600

May 31

Rs.10 Rs.10.25 (*1) Rs.10.50 Rs.12.75 (*2) Rs.13.16 (*3) 700 600

??

53

RANBAXY LABS LTD.

(*1) Average cost of 800 units = (700xRs.10 + 100xRs.12) / (700 + 100) = (Rs.7,000 + Rs.1,200) / 800 = Rs.8,200 / 800 = Rs.10.25 Cost of goods sold on May 8 = 500xRs.10.25 = Rs.5,125

(*2) Average cost of 900 units = (300xRs.10.25 + 600xRs.14) / (300 + 600) = (Rs.3,075 + Rs.8,400) / 900 = Rs.11,475 / 900 = Rs.12.75 (*3) Average cost of 1,100 units = (900xRs.12.75 + 200xRs.15) / (900 + 200) = (Rs.11,475 + Rs.3,000) / 1,100 = Rs.14,475 / 1,100 = Rs.13.16 Cost of goods sold on May 25 = 400xRs.13.16 = Rs.5,264 Cost of goods sold on May 27 = 100xRs.13.16 = Rs.1,316 Total cost of goods sold = 500xRs.10.25 + 400xRs.13.16 + 100xRs.13.16 = Rs.5,125 + Rs.5,264 + Rs.1,316 = Rs.11,705 Cost of ending inventory = Beginning inventory + Cost of purchases - Cost of goods sold = Rs.7,000 + (100xRs.12 + 600xRs.14 + 200xRs.15) Rs.11,705 = Rs.7,000 + Rs.12,600 - Rs.11,705 = Rs.7,895 [Checking]

54

RANBAXY LABS LTD. Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units Cost of ending inventory = 600 x Rs.13.16 (Moving Average cost per unit as of May 31) = Rs.7,896 Rs.7,896 - Rs.7,895 = Rs.1 (rounding error)

Example 1-6 (Periodic Recording, Weighted Average Valuation) Weighted Average valuation under periodic inventory system Date May 1 May 3 May 8 May 15 May 19 May 25 May 27 May 31

Transactions Beginning Inventory Purchase Sale (*1) Purchase Purchase Sale (*2) Sale (*3) Ending Inventory

Units Sold

Unit Cost

Inventory Units

700

Rs.10

700

100 (500) 600 200 (400) (100)

Rs.12 ?? Rs.14 Rs.15 ?? ??

800 300 900 1,100 700 600

??

Under periodic inventory system, cost of inventories is calculated at the end of each accounting period (on May 31 in this example).

55

RANBAXY LABS LTD.

[May 31, 2006] Quantity of ending inventory = Beginning inventory + Units purchased - Units sold = 700 + 900 - 1,000 = 600 units

Weighted average cost per unit = (700xRs.10 + 100xRs.12 + 600xRs.14 + 200xRs.15) / (700+100+600+200) = (Rs.7,000 + Rs.1,200 + Rs.8,400 + Rs.3,000) / 1,600 = Rs.19,600 / 1,600 = Rs.12.25 Cost of goods sold = (500 + 400 + 100) x Rs.12.25 = 1,000 x Rs.12.25 = Rs.12,250

Cost of ending inventory = 600 x Rs.12.25 = Rs.7,350 [Checking] Cost of ending inventory = Beginning inventory + Purchases - Cost of Goods Sold = Rs.7,000 + (100xRs.12 + 600xRs.14 + 200xRs.15) 56

RANBAXY LABS LTD. Rs.12,250 = Rs.7,000 + Rs.12,600 - Rs.12,250 = Rs.7,350

57

Perpetual Inventory System Perpetual inventory system updates inventory accounts after each RANBAXY LABS LTD. purchase or sale. Inventory subsidiary ledger is updated after each transaction. Inventory quantities are updated continuously. Periodic Inventory System Periodic inventory system records inventory purchase or sale in "Purchases" account. "Purchases" account is updated continuously, however, "Inventory" account is updated on a periodic basis, at the end of each accounting period (e.g., monthly, quarterly) Inventory subsidiary ledger is not updated after each purchase or sale of inventory. Inventory quantities are not updated continuously. Inventory quantities are updated on a periodic basis. Example 1 (Company A) On May 1, 2006: Purchased 1,000 units of merchandise at Rs.30 per unit. Under Perpetual inventory system Debit Merchandise Inventory

Credit

30,000

Accounts payable

30,000

Under Periodic inventory system Debit Purchases

Credit

30,000

Accounts payable

30,000

Under periodic inventory system, all purchases during the accounting period are recorded in the "Purchases" account. On May 6, 2006: Sold 200 units of merchandise at Rs.50 per unit on credit. Under Perpetual inventory system 58

Debit

Credit

RANBAXY LABS LTD.

Ratios on inventory

Inventory Turnover: This ratio shows how many times in one accounting period the company turns over (sells) its inventory and is valuable for spotting under-stocking, overstocking, obsolescence and the need for merchandising improvement. Faster turnovers are generally viewed as a positive trend; they increase cash flow and reduce warehousing and other related costs. The formula is: Cost of Goods Sold ________________ Inventory Days Inventory: This ratio identifies the average length of time in days it takes the inventory to turn over. As with inventory turnover (above), fewer days mean that inventory is being sold more quickly. The formula is:

59

RANBAXY LABS LTD. 365 Days _________________ Inventory Turnover

Inventory Control in Contract manufacturing A proper inventory control not only helps in solving the acute problem of liquidity but also increase profits and causes substantial reduction in the working capital of concern. Tools and techniques followed that leads to effective inventory management at outsource locations– 1)

Determination of stock levels.

2)

Determination of safety stock.

3)

Preparation of inventory reports.

More and more emphasis should be given as determination of stock levels helps

in reducing carrying costs and ordering cost.

4)

A.B.C. Analysis

5)

Determination of Economic Order Quantity.

6)

Agency schedule of inventories.

60

RANBAXY LABS LTD.

Over Stocking

Over-stocking of stocks at outsource locations leads to ¤

Reduction of liquidity

¤

Starving at other outsource locations. Production planning plays an important role because its insufficient planning can lead to over-stocking. So, the investments in inventory is done in reasonable

limits, because sometimes under stocking of stock could result in stoppage of work at outsource locations.

CONTROLS BY FINANCE DEPARTMENT The Details of the Monthly stock Report held at the vendor location is provided by the Vendor which is attested by the authorized signatory of the Company. Documents provided:

61

RANBAXY LABS LTD.  

Material Consumption Statement (MCS) provides a base on the basis of which Reconciliation statement and the Efficiency Report of the Raw material, Intermediate & other solvents is prepared. In this statement, the Actual Usage & the Output of a particular product is given that helps to calculate the efficiencies of the product [ Yield Variance + Usage Variance ] + number of batches for production of each product is included. These Variances is being calculated against the Standard fixed by Ranbaxy. This is statement is being provided on monthly basis which includes the Opening stock (Closing Stock of previous month) , the actual receipts of Inventory in particular month , stock consumed & details regarding the Closing Stock either in Physical (store) , Shop Floor ( i.e.; in plant area) or in WIP (Work in Process) is held at Vendor Location . For Reconciling: In this, whatever the stock are received by vendor from RLL

and what is dispatched to RLL from vendor is given. The information is given date wise for each month which makes the

62

RANBAXY LABS LTD. process transparent as Ranbaxy follow SAP; so all the details regarding movements of stock are shown. This helps in analyzing the status of the stock derived i.e. Inventory according to Production Plan Vs Current Status of Stock are compared. 

For Calculating Efficiency : In this statement also, the Actual Usage & the Output of a

particular product is given that helps to calculate the efficiencies of the product [Yield Variance and Usage Variance] + number of batches for production of each product is included. These Variances is being calculated against the Standards fixed by the Ranbaxy. This statement is provided on monthly basis which includes the Opening stock (Closing Stock of previous month), the actual receipts of inventory in particular month, stock consumed and details regarding the Closing stock either in Physical (store), Shop floor ( i.e.; in plant area) or in WIP (Work in Process) is held at Vendor location. for example as attached Loss & gain in the product is calculated in Efficiency Report , which is due to the excess consumption of the usage which is in the form of Cleaning & Washing of reactors, Other handling losses , excess inputs in the product or due to over

63

RANBAXY LABS LTD. heating or over cooling of the output which results in the loss of Output against Standard .

The Losses in the Products can be grouped as1. YIELD VARIANCE 2. USAGE VARIANCE While Calculating the Yield Variance , the Actual Production of the Product for some fixed batches is being compared with the Standard Output & the Variance is being calculated on the Product Standard Cost ie.; Yield Variance = (Standard Output – Actual Output) x Standard Cost But for Calculating the Usage Variances, the Actual input of the Raw Materials in the product is compared with the Standard

64

RANBAXY LABS LTD. input and the Variance of the Input is being calculated with Standard Rate of the Raw material. i.e;

Usage Variances = (Actual Input – Standard Input) x Standard Rate

Material Yield Variance:It is that portion of material usage variance which is due to difference between standard

yield specified and actual yield

obtained. i.e yield that arises due to difference in output according to

standards required and actual

output realized. While

Calculating the Yield Variance , the Actual Production of the Product for some fixed batches is being compared with the Standard Output & the Variance is being calculated on the Product Standard Cost ie.;

Yield Variance = (Standard Output – Actual Output) x Standard Cost

65

RANBAXY LABS LTD. YTD variance measures the abnormal loss on per kg. Usage of materials or savings on materials.

Calculation for the Efficiency of the Product Input' S.no. It_Desc

Uom

Rate

s

Bou

Glycrine

0 1.000

Yield Usage Var. Var.

STD.

Actual

1200.0

1200.0

256.400

0

0

72.500

300.00 3900.0

400.00 4500.0

(0.029)

256.4 1 Pencillin-G Alpha

Input

Std.Cost

0.000

290.0

2 base Ethyl

KG

3 Acetate

L

45.00 3.250

146.250

0 2160.0

0 2100.0

(0.027)

4 Toluene

L

21.50 1.800

38.700

0 3300.0

0 4000.0

0.001

5 Methanol Pivaloyl

L

30.15 2.750 175.6

82.913

0

0

(0.021)

6 Chloride

KG

0 0.560

98.336

672.00 1260.0

950.00

(0.049)

7 HCL Comm. KG

10.96 1.050

11.508

0

900.00 1100.0

0.004

8 Hyflow

35.00 0.80

28.000

960.00

0

KG

0 0.250

(0.005) 66

RANBAXY LABS LTD. Sodium 9 Chloride Nitrogen 10 Gas

KG CDM

3.50 2.20 365.0 0 1.72

2640.0

2200.0

7.700

0 2064.0

0 2500.0

627.800

0

0

0.002 (0.159) 0.250

1994.33 Yield

0.687

3

824.40

950.00

0.250 (0.283)

In the above case If we take into account the input per kg. Of raw material it clears that raw material consumption (usage) shows unfavorable variance i.e. There is unfavorable usage variance.

REASONS FOR THIS PROBLEMS AND THE ACTION PLAN: 1.

Excessive wastage at vendor location by the foreman

concerned there is responsible for this situation. 67

RANBAXY LABS LTD. .2.

Variance could be due to the consumption that is made by

parties on actual basis or wrong setting up of standard i.e. norms should be fixed. 3.

There could be wrong mixing up of material and the

production manager employed at vendor location are responsible for this, due to ineffective supervision. 4.

Wrong specifications of the norms is another possible reason

and R& D department should review the norms so as to avoid any possible loss in the near future. 5.

Careless handling by the storekeeper at vendor locations.

6.

Poor quality of the raw material purchased by the vendor

locations could be another possibility.



Receipts and Dispatch Status: That is monthly stock received from Ranbaxy (date wise) & how is further dispatch to Ranbaxy.



-Batch Data Reports (BDR): Which covers the actual consumption of the Raw materials used in the particular product? It also includes the Batch starting time & completion time.

68

RANBAXY LABS LTD. 

Quarterly Audits or Surprised Audits: Audits are being conducted by Ranbaxy, to get current status of Inventory lying at the vendor location. Complete check of

records,

documents & procedures adopted by the location is to be audited by the auditor. 

Physical

Verification

of

Raw

Materials,

WIP

&

Intermediates are to be cross-checked with the Stock Register / Ledgers of the stores. All the issues slips, indents slips are to be physically checked, the Inwards/Outwards records are to be checked, any Sale /Purchase records are to be checked by the Auditors. After all this procedures, the report is to be submitted to Ranbaxy. 

Daily Production Report (DPR) : Data gives the exact picture of the current batches taken in the particular day i.e. ; whether the Batch is In-Process or in Wet or Dry form or Dispatched to Ranbaxy



Details of Useable or Nonuse able Solvents:

such as

Acetone, Methanol, Toluene etc.; will be used further in the process or to be drain off or to be sale off or to return to Ranbaxy.

69

RANBAXY LABS LTD. 

Details of Rejected & Non-Moving Stocks: Details of the Rejected & Non moving stocks are to be provided by the Vendor so as to take corrective decision against them. For Rejected Intermediates, the Rejected Quantity is to be

reprocessed again so as to convert into pure form. During this process there is a loss of quantity also. For example: Vendor - Cardinal Drugs Product – Jap-2-3P (Cilastatin) Rejected Quantity received from Ranbaxy to Vendor – 45 kg After Reprocessed, the Quantity produced – 40kg Actual Loss during Reprocess – 5 kg For Non-moving Stocks, A complete details of Raw materials & others is to be provided to Ranbaxy on monthly basis so as to take a decision against them. This is due to Change of Product demand in the market which results to stop the continuous production, shift the product to some other location etc. 

Details of Intermediate/Raw Materials Ageing Report – This is due to avoid the violation of Excise Rules i.e.; no Raw Materials , Solvents or Intermediates are to be kept at 70

RANBAXY LABS LTD. the Out Source Location for more than 180days. It is to be consumed in the product or return, to the Ranbaxy Labs. at there respective plants (Mohali /Toansa /Dewas). This is to be calculated on the basis of following factors : o

Closing Stock Quantity as on 31st of every month.

o Batch Completion date o Batch number

Cash Lock in System (Value in millions)

Name

of Insurance

vendor party Drugo Chemicals Parabolic Eskay Fine

Stocks

Over-under

sum provided 0.35

0.10

0.25

450 80

210 0

240 80

Chem.

71

RANBAXY LABS LTD. Precautionary Motive Though insurance coverage has been provided against the inventory at outsource location in order to meet various contingencies.

Problem Excess insurance sum provided on inventory resulting in stagnation of cash thereby reducing the liquidity position.

Cost Involved 1.

Handling cost large amount of premium to be paid.

2.

Opportunity Cost

Anticipation of the production to be made at outsource locations should be done and then the amount of insurance coverage be decided.

WIP HOLDING NORMS Calculation of number of days(inventory holding)

72

RANBAXY LABS LTD. This is been calculated by comparing , • GROSS WORKING CAPITAL • ACTVITY FORECAST WIP Holding Norms = number of days x Gross Working Capital (OS) Activity Forecast for the next month

No. of days of inventory holding at outsource locations Excise rule

Inventory lying at vendor party should not exceed

180 days. Ranbaxy Rule Inventory holding at vendor locations should not exceed 30 days. Case

As on 31 JAN 05

Name of the

Interm.

party

Inventory holding/ days

Saurav

Penta-4

50

Shanti

Citalopram

41

73

RANBAXY LABS LTD.

Calculation of number of days(inventory holding) Production planning should be made more effective so that there is less blockage of cash in the form of closing stock. A decision has to be taken that whether this stock lying idle should be kept with outsource party or should be transferred back to Ranbaxy if not in use keeping in mind the following fact.

Idle Inventory  No value addition  Rising total cost  Blockage of liquidity  No synergic effect.

74

RANBAXY LABS LTD.

MATERIAL RESOURCE PLANNING

Material requirement planning is essentially computerized Planning and control of

production

environment. important

system for the

and

inventories

MRP derives distinction

its

between

inventories. Finished goods and

effective management in a

manufacturing

Power From the very independent

demand

S pare Parts are independent

demand

inventories. Dependent demand is derived From the

demand

Of finished goods or “end items.’

75

RANBAXY LABS LTD. An MRP which

system

specifies

production

is driven

the

end

by

the master

items

function. All future

or

schedule

output of

demands

the

for work

progress and raw materials should be dependent on master

schedule

from it.

and be

Since

derived

condition

by

are

master schedule is a far better

the

MRP

usually

basis

for planning raw materials and work

in the

system

changing ; the

than

past

demand

in progress inventory.

Using MRP, the master schedule is exploded into purchase orders for

scheduling

of the parts explosion materials

which

requires

lists each

of

the factory. This process a

detailed the

parts

bill

of

needed

to

manufacture one unit of each item. The required parts may include and

assemblies,

purchased

subassemblies, and manufactured parts

parts.

In the process of

explosion,

it is

necessary to consider inventories of parts which are already on hand or no order.

Another adjustment made during and

parts

explosion

purchase of lead items.

is for

the

production

starting with

the

master schedule, each manufactured or purchased parts

is offset [ i.e. . ordered earlier] by the amount of time it

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RANBAXY LABS LTD. takes to get

parts [lead time] . This procedure of offsetting

ensures

that each

component will be

support

the master schedule.

available

in

time to

In most companies, financial systems are being driven by

transactions and assumptions different from material

control systems. The tool now exist to tie

MRP and

financial systems together by a simple conversion from physical units

to

rupees and vice

versa. Physical

control thus becomes the basis for financial control.

THE MRP system can also be extended to support product costing and accounting. As a matter of fact, a cost module is sometimes provided as a part of the MRP software.

Today

further advances in computer technology

are making MRP systems practical even for small businesses. Today there

are approximately 200 MRP

software packages on the market.

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MATERIAL RESOURCE PLANNING

Material Resource Planning process

Market Demand

Forecasts

M. Schedule for production

Inventory Status

Material Requisite plan

Manuf. & Proc. Lead time

Capacity adequate

Information on product design, structure

No

Yes

Final master prod. Schedule 78

RANBAXY LABS LTD.

Suggestions There are several measures that businesses can use to effectively keep their inventory under control. A few simple steps is all that is needed if a business owner wants to take full control of everything they have stored. First, the business owner will need to do an initial count of everything in stock. The count of all items in stock should be completely documented as well as all items that are ready for sale. A recount can ensure accuracy. This will give the business owner a starting point for inventory tracking. At this point, it may prove to be an advantage for the business owner to use some kind of inventory tracking software application. Next, when new inventory is added to existing inventory, the first thing a business owner should do is to check it for quality. Are any of the items dented or damaged? If so, they will need to be returned so that the business can get appropriate credit—damaged items do no good sitting on storeroom or warehouse shelves. Next, the new inventory should be added to the count of the existing inventory, particularly in the business documentation. This will help the business owner to keep an adequate count of what is in stock. When ordering it is advised not to over order or to under order stock; however, this does not mean that the business owner shouldn’t take full advantage of what’s available to them in terms of sales and discounts. If items bought in bulk are less expensive, it is sometimes a good idea to purchase them that way. Essentially, the business owner will need to make a judgment call and take the perish-ability of the product into consideration.

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RANBAXY LABS LTD. CONCLUSION Inventory consulting is another option that business operators take advantage of in their effort to get a handle on their stock. Hiring inventory consulting professionals has a number of advantages. One benefit can be found in the fact that inventory-consulting professionals take the entire and sometimes daunting task of inventory management off the hands of the business operator. Also, business owners like the idea of having one or more individuals come in to handle inventory counting and monitoring—it saves the business owner additional costs in time and labor. Inventory consulting agencies document everything for the business owner and will further back up such documentation. In the event that the business suffers from vandalism, fire or some other catastrophe they will still have a complete record of the inventory assets they held. This ensures that the business will not suffer more loss than it already has and it will also insure more adequate and accurate insurance claims. Within moments, an inventory-consulting agency can provide a business owner with a complete print out of their current inventory. Thus, business owners have access to vital business documents and they information they provide. When it comes time to insure the business or to run an inventory check, a business owner can feel confident in knowing precisely what they are expected to have. As a final point, some inventory consulting agencies will actually handle all of the ordering for the business. While this may seem like too much control to give to another agency, some business professionals like they idea of relying on a company to manage inventory. It leaves the business operator free to manage other aspects of the business

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Biblography

www.google.com www.wikipedia.com www.inflowinventory.com www.sap.com www.dynamic.com

Books

1. Inventory Control - ( Hari Dayal Gupta ) 2. Production Planning and Inventory Control - ( Magee )

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