Summer Internship Project Report

On

Analyzing & optimizing the inventories of major APIs used in external manufacturing sites
For The Partial Fulfilment Of

Post Graduate Diploma in Industrial Management (PGDIM)

At

XYZ India
By

XYZ
(Roll No. 6) PGDIM Batch of 2013, PGDIM 18 XYZ, XYZ Under The Guidance Of
Sadhana Mogre Associate Director Plant Logistics(External Mfg.) Sanofi India, XYZ Professor V.B. Khanapuri Faculty Guide XYZ, XYZ

XYZ

CERTIFICATE

This is to certify that Mr. XYZ, student of Post Graduate Diploma in Industrial Management (PGDIM) 18th Batch of National Institute of Industrial Engineering (XYZ) has successfully completed his Summer Internship Project titled as: Analyzing & optimizing the inventories of major Active pharmaceutical ingredients used in external manufacturing sites during the period 16th -April-2012 to 6th -June-2012, at XYZ India, XYZ. I appreciate the efforts put by him and wish him a bright and prosperous future.

Professor V.B. Khanapuri Faculty Guide XYZ, XYZ

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CERTIFICATE

This is to certify that Mr. XYZ, student of Post Graduate Diploma in Industrial Management (PGDIM) 18th Batch of XYZ (XYZ) has successfully completed his Summer Internship Project titled as: Analyzing & optimizing the inventories of major Active pharmaceutical ingredients used in external manufacturing sites during the period 16th -April-2012 to 6th -June-2012, at XYZ India, XYZ. During the project his conduct was found to be excellent. I appreciate the efforts put by him and wish him a bright and prosperous future.

Kamlesh Vaishnav Deputy Director - Human Resources Industrial Affairs XYZ India, XYZ

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Acknowledgement

Too often we are so preoccupied with the destination, we forget the guiding light
-anonymous

I take this opportunity to extend my sincere thanks to XYZ India, XYZ for providing me an excellent opportunity to earn exposure and garner practical knowledge in External manufacturing division of Industrial Affairs and learn about other functions of Industrial affairs. I wish to extend my sincere and heartfelt gratitude to Sadhana Mogre, Associate Director - Plant Logistics(External Manufacturing), XYZ india, XYZ who guided, supported, motivated and encouraged me during entire tenure of the project. I also thank Mr. Sanjiv Naik, Head - Procurement and Mr. Shashikant Lad, Associate Director Procurement who guided me right through from approaching, implementing and up to concluding the project. I also extend my gratitude to them for guiding me to fullest in case of technical, logical and other difficulties and ensuring that the project goes on. I also extend my sincere gratitude to Mr. Prakash chaudhari, Head - Plant Logistics, Mr. Satya Balan, Manager - Plant Logistics and Mr. Anant Angne, Manager - Plant Logistics of XYZ india for helping me with their experiences to understand the forecasting and demand planning Special thanks to Mallika Walia, Head - Strategic Sourcing, XYZ India for keeping faith in me and providing me with this golden opportunity. I also thank all in XYZ India, XYZ who directly and indirectly helped me to during this project. I also thank my Faculty Guide Prof. V.B. Khanapuri, XYZ, XYZ who helped and guided me throughout tenure of my project. I also thank entire XYZ faculty and staff for coordinating summer internship for XYZ students.

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Table of Contents

CERTIFICATE ....................................................................................................................................... 2 CERTIFICATE ....................................................................................................................................... 3 Acknowledgement .................................................................................................................................. 4 1 2 Executive Summary ........................................................................................................................ 7 Company Background XYZ ........................................................................................................ 8 2.1 2.2 2.3 2.4 Global Presence ...................................................................................................................... 9 Financials ................................................................................................................................ 9 Future Outlook ........................................................................................................................ 9 XYZ in India ......................................................................................................................... 10 XYZ India Limited........................................................................................................ 10 XYZ-Synthelabo (India) Limited .................................................................................. 10 XYZ Pasteur Private Limited ........................................................................................ 11 Shantha Biotechnics Limited ........................................................................................ 11

2.4.1 2.4.2 2.4.3 2.4.4 2.5 2.6 3

Organization Structure .......................................................................................................... 11 Business Unit Overview........................................................................................................ 12

Introduction ................................................................................................................................... 13 3.1 3.2 3.3 3.4 3.5 Business Need ....................................................................................................................... 13 Objective ............................................................................................................................... 13 Scope ..................................................................................................................................... 13 Methodology ......................................................................................................................... 13 Deliverables .......................................................................................................................... 14

Literature Survey - Pharmaceutical Sector ................................................................................... 15 4.1 Overview Pharmaceautical Industry .................................................................................. 15 Market Size ................................................................................................................... 15 Pharma Sector in India .................................................................................................. 15 Growth Drivers Pharmaceutical Industry India ......................................................... 17 Prospects of Indian Pharma........................................................................................... 17

4.1.1 4.1.2 4.1.3 4.1.4 4.2 5

Literature Review.................................................................................................................. 18

Methodology ................................................................................................................................. 19 5.1 5.2 5.3 5.4 5.5 5.6 Studying Forecasting technique in XYZ India: .................................................................... 19 Understanding Distribution/Supply chain in XYZ ............................................................... 20 Flow Chart for Demand Planning Process ............................................................................ 21 Classification of Inventories on the basis of ABC Analysis ................................................. 24 Pareto chart for ABC Class items ......................................................................................... 28 Ordering Policy for Inventory items:- ................................................................................... 29 Page | 5

Conclusion & Scope for Future Work .......................................................................................... 36 6.1 6.2 6.3 Conclusion ............................................................................................................................ 36 Future Scope of Work ........................................................................................................... 36 Academic Contributions ....................................................................................................... 36

7 8 9

Annexure I List of tables............................................................................................................ 38 Annexure II List of figures......................................................................................................... 39 References ..................................................................................................................................... 40 9.1 9.2 9.3 Related to XYZ India ............................................................................................................ 40 Websites related to Pharmaceutical Sector ........................................................................... 40 Related to Inventory Management & Operations ................................................................ 40 Books ............................................................................................................................ 40 Websites ........................................................................................................................ 40

9.3.1 9.3.2

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Executive Summary

XYZ is a diversified global healthcare company engaged in the research, development, manufacture and marketing of healthcare products.Its business includes pharmaceuticals, comprising prescription drugs, consumer healthcare and generics; vaccines and animal health. The purpose of this study is to analyze and optimize the inventories of major active pharmaceutical ingredients used in external manufacturing.The project assigned involved regular interaction with Plant Logistics, Procurement, Market Supply Chain divisions of XYZ india. As inventory is one of the major components of the working capital so it needs to be carefully controlled in order to run business effectively. From both financial and operational perspectives, efficient inventory management plays a great role in pharma industry. The work done on this project can be divided into the following stages: 1. Understanding the forecasting techniques used in XYZ india 2. In depth study of the Demand planning process used to make the production plan and raise purchase requistions 3. To claasify the raw material inventories on the basis of ABC Analysis; Pareto chart for A, B and C Class items 4. To analyze the existing ordering policy of Inventory items and device an optimized ordering policies for inventory items depending upon the classification of the inventory The aim of the project was to provide XYZ India with: 1. ABC Classification of inventory items 2. Optimized ordering policy for inventory The ordering policy was optimized resulting in segregated ordering policy for inventory items depending upon the classification of the the items.The ordering policy was deviced taking into consideration the Demad fluctuations, Lead time variations, Shelf Life and Volume occupied by the inventory item.This resulted in the huge cost reductions in the Annual inventory value.

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Company Background XYZ

Vision
Be part of the future of healthcare. Focusing on the needs of patients in todays changing world calls for us to adapt the way we work and do business at XYZ. We endeavor to protect the health of the worlds 7 billion inhabitants, improve their quality of life and respond to their potential healthcare needs. This is only possible with a sustainable strategyone that moves closer to peoples needs, reaches emerging markets, and builds our capabilities as a diversified healthcare company.

Commitment
Be part of a better world." Bringing life-saving medicines and vaccines to patients and commuXYZs around the world brings increased awareness. We ensure that we always act ethically and responsibly in support of economic and social development while respecting the environment. We know that how we do our work is just as critical to our mission as what we deliver.

Strategy
A diversified healthcare partner focused on patients needs." At the heart of everything we do are people. Through our vaccines and medicines, we help prevent and where needed, treat those in need. As economies and societies evolve, we need healthy populations to meet the future challenges we will face. Healthcare needs have changed and will continue to do so and as an industry we have to adapt to meet these needs. To have a real impact, we have to build a sustainable business to invest in delivering innovative solutions. At the same time we need to improve access to medicines and improved healthcare. In order to move along in this ambition, we continue to push forward with our key strategic priorities: Increasing innovation in Research & Development. Seizing External growth opportuXYZs. Adapting the group to future challenges.

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2.1 Global Presence

XYZ is one of the world's leading pharmaceutical companies. XYZ engages in the research & development, manufacturing and marketing of pharmaceutical products for sale principally in the prescription market, but the firm also develops over-the-counter medication.Backed by world-class R&D facilities, XYZ-aventis is developing leading positions in seven major therapeutic areas: cardiovascular, thrombosis, oncology, diabetes, central nervous system disorders, internal medicine and vaccines. With more than 110,000 employees in a hundred countries, XYZ has a strong presence worldwide. XYZ has a commercial presence in approximately 100 countries, and our products are available in more than 170 countries.

2.2 Financials
Key Parameters Net Sales Other Revenue Cost of Sales Gross profit R & D Expenses Selling & General expenses Business Net Income Business Earning per share Table 1: Financials of XYZ Group 2011 33,389 mn 1,669 mn 10,426 mn 24,632 mn 4,811 mn 8, 536 mn 8, 795 mn 6.65 2010 32,367 mn 1,669 mn 9,302 mn 24,734 mn 4556 mn 8, 171 mn 9,215 mn 7.06

2.3 Future Outlook

XYZ is a diversified global healthcare leader with a number of core strengths: a strong and longestablished presence in Emerging Markets, a portfolio of diabetes drugs including the biggest selling insulin in the world (Lantus), a market-leading position in Vaccines and Animal Health, a broad range of Consumer Health Care products and research that is increasingly focused on biological products, allied with a track record of adapting cost structures and a solid financial position. Throughout 2011, we have implemented a wide-ranging transformation program launched in 2009, designed to secure sources of sustainable growth. Our strategy focuses on three key themes:

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1. Increasing innovation in Research & Development:- XYZ conducted a complete and objective review of our research portfolio in 2009, in order to reassess the allocation of resources. This review led to a rationalization of our portfolio, targeting the most promising projects. In February 2011, 53% of our development portfolio consisted of biological products and vaccines. 2. Adapting our structures to meet the challenges of the future:- During 2009, we adapted our operating model, previously too focused on the most important prescription drugs in our traditionally important markets, to reflect the diversity of our activities and our geographical reach. In particular, we tailored our strategy, structure and offering to each regions needs, so as to deliver the most appropriate solution to each patient. 30% of our 2010 sales were in emerging markets, where approximately 39% of our employees are located, and where we have strengthened our Consumer Health Care operations. 3. Exploring external growth opportuXYZs:- Business development is wholly integrated into our overall strategy, and translates into disciplined acquisitions and alliances that create or strengthen platforms for long-term growth and create value for our shareholders. During 2010, we pursued this active and targeted policy, announcing 37 new transactions, including nine acquisitions or creations of joint ventures and 28 R&D alliances.

2.4 XYZ in India

XYZ-aventis in India operates through four entities - XYZ India Limited, XYZ-Synthelabo (India) Limited, XYZ Pasteur India Private Limited and Shantha Biotechnics. XYZ-aventis and its 100% subsidiary Hoechst GmbH are the major shareholders of XYZ India Limited and together hold 60.4% of its paid-up share capital. XYZ-Synthelabo (India) Limited and XYZ Pasteur are 100% subsidiaries of XYZ-aventis Group. 2.4.1 XYZ India Limited

XYZ india Limited was incorporated in May 1956 under the name Hoechst Fedco Pharma Private Limited. Over the years, its name was changed to Hoechst Pharmaceuticals Private Limited, Hoechst India Limited and Hoechst Marion Roussel Limited. The shares of XYZ India Limited are quoted on the Bombay Stock Exchange and the National Stock Exchange. XYZ India Limited [India] has around 2,300 employees. It has state-of-the-art manufacturing facilities in Ankleshwar and Goa, where active pharmaceutical ingredients and formulations are manufactured. 2.4.2 XYZ-Synthelabo (India) Limited

XYZ-Synthelabo (India) Limited was incorporated in June 1996 under the name XYZ Torrent (India) Private Limited. Its name was changed to XYZ-Synthelabo (India) Limited in May 2002. XYZSynthelabo (India) Limited has around 70 employees. Page | 10

2.4.3

XYZ Pasteur Private Limited

XYZ Pasteur India Pvt. Ltd., the Indian subsidiary of XYZ pasteur, with its registered office in XYZ has been represented in India since 1997 through a legal entity created in early 1996 in New Delhi. The companys presence in India goes back more than a decade when it was operating basically as a liaison office, as Institut Mrieux, then as Pasteur Mrieux Srums & Vaccines (PMsv), Aventis Pasteur and now XYZ Pasteur India Pvt. Ltd. XYZ Pasteurs endeavor in India has always been to be the first to introduce its innovative vaccines in India. XYZ-Pasteur India has 190 employees. 2.4.4 Shantha Biotechnics Limited

Shantha Biotechnics Limited (Shantha) has become a part of the XYZ-Aventis group in July, 2009 and has around 850 employees. The registered offices of the first three companies are in XYZ and the registered office of Shantha Biotechnics Limited is in Hyderabad. There are zonal offices in XYZ, Chennai, Kolkata and New Delhi.

2.5 Organization Structure

Sanofi

Reseach & Developoment

Manufacturing

Commercial operations

Corporate & Suppport Functions

Figure 1: XYZ Organization Structure Research & development:- At XYZ R&D, our goal is simple: improved health for everyone. Our organization has evolved to meet the growing challenges of global healthcare and to find new ways to develop value-driven therapies and vaccines. Our dedicated teams meet unsatisfied medical needs through new sources of innovation which capitalize on extraordinary scientific advances. Our researchers and partners are driven by a commitment to accelerate patient access to innovation. We strive to be the best R&D organization in the world, delivering health solutions for the benefit of our patients. Manufacturing:- Industrial Affairs is focused on developing, producing, packaging and distributing high quality medicines and products which are not only innovative, but are also affordable for everybody. For us, innovation is always top of mind. We lead the industry in the cost-effective application of technologies for pharmaceutical products, with emerging markets representing more than 70% of our growth. Commercial Operations:- At XYZ, we endeavour to improve the health of all 7 billion people in the world. Our Commercial Operations are central to this, making it possible for us Page | 11

to sustain substantial growth in a fast-changing healthcare environment. Commercial Operations contribute to ensuring world-class business performance, leading the way into new sectors while promoting our global reputation for excellence in scientific innovation. Corporate & Support Functions:- We believe that collaboration leads to the most effective and beneficial innovations in world health. Our corporate/support function teams creates the innovative environment that inspires our groundbreaking solutions.The main support functions are Audit, Communications, Corporate Social Responsibility, Finance, General Services, Health, Safety & Environment, Human Resources, Information Solutions and Legal .

2.6 Business Unit Overview

Industrial Affairs: Industrial Affairs is focused on developing, producing, packaging and distributing high quality medicines and products which are not only innovative, but are also affordable for everybody.XYZ has two state-of-the-art manufacturing facilities at Ankleshwar, Gujarat (chemistry and pharmaceuticals) and at Verna, Goa (pharmaceuticals). Incorporating the latest designs and processes in manufacturing, both sites have been identified as global sourcing units.

External Manufacturing: XYZ also manufactures its products on at 23 Toll Sites. The different types of dosage forms include tablets, capsules (hard and soft), Eye/Ear drops, ampoules, vials, creams and ointments. These are manufactured in accordance with the same quality standards as those prevalent at its own manufacturing sites for domestic consumption and for export to Russia, the Ukraine and other CIS countries and Latam markets.

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Introduction
3.1 Business Need

Inventory is one of the major components of the working capital or the current assets and so it needs to be carefully controlled in order to run business effectively. Having too little or too much inventory needs to be avoided. Focussed attention on Inventory leads to the effective utilization of the working capital. From both financial and operational perspectives, efficient inventory management plays a great role in pharmacy practice. From financial viewpoint, efficient inventory management enhances gross profits and net profits by reducing the cost of procured pharmaceutical products and associated operational expenses. In addition, cash flow will improve upon saving on purchasing and storing less costly products. Such cash flow can be used to pay operational expenses and invest in other services. From operational viewpoint, effective inventory management ensures meeting customer and patient demands.

3.2 Objective
The objective of the project is to analyze & optimize the inventories of major Active pharmaceutical ingredients used in external manufacturing sites of XYZ India Limited.

3.3 Scope
The project covers the following topics: To study the forecasting method and Demand Planning used to manage the inventory of Active Pharmaceutical ingredients. To classify raw material inventories supplied - ABC classification of inventory items. To optimize the ordering policy of A and C class items.

3.4 Methodology
The methodology involves the following steps: 1. Studying Forecasting technique in XYZ India 2. Understanding Distribution/Supply chain in XYZ 3. In depth study of Demand Planning Process 4. Classification of Inventories on the basis of ABC Analysis 5. Pareto chart for ABC Analysis 6. Ordering Policy for Inventory items 7. Cost benefit Analysis

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3.5 Deliverables
The deliverables of the project are as follows: 1. Classification of the items on the basis of Annual Rupee Value 2. Optimized Ordering policy for inventory items

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Literature Survey - Pharmaceutical Sector

4.1 Overview Pharmaceautical Industry

4.1.1

Market Size

The value of the global pharmaceutical market is expected to grow by 57% in 2012 to US$880 billion, compared with a 4-5% pace in 2011, according to IMS Health. The global pharmaceutical market expanded modestly in 2011. In that year, total pharmaceutical sales worldwide by geographical region were as follows:

North America 39% Europe 29% Asia, Africa, and Australia 15% Japan 11% Latin America 6%

Global pharmaceutical sales are expected to grow at a compound annual growth rate (CAGR) of 3% 6% during the period 2011-15, despite the impending loss in revenue expected from the expiry of patents.This gain will largely be driven by robust growth in emerging markets. It is anticipated that such markets will account for approximately 28% of total sales worldwide in 2015, up from only 18% in 2011. This growth is in sharp contrast to the expected CAGR of only 1% - 4% for the primary drug markets of North America and Europe. Pharmaceutical companies face many challenges and uncertainties, including heightened competition from makers of generic drugs, unprecedented pressure on pricing from payers (such as insurance companies), constraints on public sector budgets and declining R&D productivity.The pressure to reorganize R&D, provide affordable price and marketing overhauls is intense. However, there are improvements in early-stage product pipelines in the pharmaceutical industry particularly in the fields of cancer and diabetes which offer long-term promise. In addition, an aging population and new products are likely to create a robust future for the industry. 4.1.2 Pharma Sector in India

The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The Indian pharma industry grew by a robust 18% YoY in 2011 to Rs 565 bn (approx. US$ 12.5 bn). It accounts for about 1.4% of the world's pharma industry in value terms and 10% in volume terms. Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. While some are focusing on the generics market in the US, Europe and

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semi-regulated markets, others are focusing on custom manufacturing for innovator companies. Biopharmaceuticals is also increasingly becoming an area of interest given the complexity in manufacture and limited competition. The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations - on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. The new Pharmaceutical Policy 2006, which proposes to bring 354 essential drugs under price control has not been officially passed as yet and has been stiffly opposed by the pharmaceutical industry. The R&D spends of the top five companies is about 5% to 10% of revenues. This ratio is still way below the global average of 15% to 20% of sales. Indian companies have adopted various strategies for their R&D efforts. Some have entered into collaboration and partnership agreements with innovator companies; others have out-licensed their molecules for milestone payments. Hiving off R&D units into separate companies has also become a preferred option for many Indian pharma players. That said, given that the research pipelines of Big Pharma are drying up, they have now begun to dabble in generics. In this regard, these innovator companies are either buying out Indian firms or are forging alliances with them. 2011 was a strong year for domestic pharma companies on back of strong growth in both domestic and exports sales. There was good growth seen in generics especially in the US and the semi regulated markets. Europe continued to face pressure. Companies focusing on custom manufacturing for innovators did not see a sign of recovery this year as well. Further, the efforts of global innovators to entrench in the domestic market intensified with many strategic tie-ups and small acquisitions of Indian companies. Another problem which continued to hamper the pharma sector was the stringency of the US FDA while inspecting manufacturing plants. Some of the leading Indian players by sales (US $million) are :

Table 2: List of top 10 Indian Pharmaceutical companies

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4.1.3

Growth Drivers Pharmaceutical Industry India

The industry is forecasted to grow at a Compounded Annual Growth Rate (CAGR) of 8-9% over the next 3 to 5 years. The growth is primarily linked to: Competent Workforce India has a pool of personel with high technical and managerial competence as also skilled workforce.It has an educated workforce and English is commonly used. Cost effective chemical synthesis - Its track record of development, particularly in the area of improved cost beneficial chemical synthesis for various drug molecules is excellent.It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. Legal & Financial framework India has a 53 year old democracy and hence has a solid legal framework and strong financial markets.There is already an established international industry and business community. IT Sector IT solutions and Electronic Data Interchange are reducing manpower requirements and helping in saving operational costs at ports, air terminals, etc. Consolidation - For the first time in many years, the pharmaceutical industry is finding great opportuXYZs in India.The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. 4.1.4 Prospects of Indian Pharma

The product patents regime heralds an era of innovation and research resulting in the launch of new patented product launches. In the longer run, domestic companies would face fresh competition from MNCs, as they would make aggressive new launches. However, the latter would most likely be subject to price negotiation. Drugs having estimated sales of over US$ 100 bn are expected to go off patent between 2011 and 2014. With the governments in the developed markets looking to cut down healthcare costs by facilitating a speedy introduction of generic drugs into the market, domestic pharma companies will stand to benefit. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern. The life style segments such as cardiovascular, anti-diabetes, anti-depressants and anticancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. High growth in domestic sales in the future will depend on the ability of companies to align their product portfolio towards the chronic segment as the lifestyle diseases like hypertension, congestive heart failure, depression, asthma, and diabetes are on the rise. Contract manufacturing and research (CRAMS) is expected to gain momentum going forward. India's competitive strengths in research services include English-language competency, availability of low cost skilled doctors and scientists, large patient population with diverse disease characteristics and adherence to international quality standards. As for Page | 17

contract manufacturing, both global innovators and generic majors are finding it profitable to outsource production. Although the scenario has yet not improved for this space after the financial crisis, it is expected to improve going forward as the pressure to prune costs increases.

4.2 Literature Review

Author Name Title of the Paper/Case
Xiaojun Wang, National university of Singapore, 2009

Discussed ideas/Concepts

Relevance to the project

study

Inventory Management in a Pharmaceutical company: Minimizing

1. Challenges in Supply planning 2. Demand Forecasting 3. Inventory models 4. Prevention of Inventory 1. Forecasting Expiration & Planning 2. Procurement 3. Production 4. Fulfillment 5. Customer management 1. Pharma Supply Chain 2. Supply chain costs in pharma 3. Outsourcing in Supply chain

This has a direct relevance to the current scenario of inventory management in XYZ India This gave a holistic view of supply chain in Pharma industry

Lorry koester, Kim rash CII - Institute of logistics, India, 2010 N Chandrasekran S Mohan kumar UPS Sup ply Solutiong, 2009

Building supply discard practices chain capabilities in the Pharma Sector Pharmaceutical Suplly chain challenges and best practices

It helped in better understanding of Distribution and

4. Pharma Supply chain challenge Demand planning. -Time matters

Table 3: Literature review

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Methodology

5.1 Studying Forecasting technique in XYZ India:

Demand forecasts are projections of demand for a company`s products or services.These forecasts drive a company`s production, capacity and scheduling systems.Sales forecasting in XYZ India is a complex task because of following set of issues: Large number of SKUs (Stock Keeping Units):- The number of SKUs in XYZ India is 5413. Each product has its own unique characteristics. It becomes complex to focus on the sales behaviour of each SKU and define some set of general rules for forecasting. Geographic Diversity:-As XYZ India is catering to the needs of geographically spread customers. The therapy used by doctors, distribution of specialist doctors, proportion of dispensing doctors, patients profile etc. vary from region to region. This contributes to variations in regional demands. Diverse therapeutic segments:-The sales effort is organized around therapeutic segments. The major therapeutic segments are Diabetes, Cardiovascular, Internal medicine, Thrombosis, Oncology, Central nervous system, Vaccines, Consumer Healthcare. The sale of each brand depends upon the overall size of the therapeutic segment, competitive pressures within the therapeutic group among other things. The growth and trend that exist in one therapeutic segment may widely differ from that of other therapeutic segment. Campaign Period:-The sales activity is generally carried out in well worked out campaigns. The briefing to doctors, samples distribution, doctors conference and other marketing activities are generally carried out around the campaign products during campaign period. These stimuli also change the demand pattern. Differential Brand promotion:-XYZ also launch schemes and offer gifts for brand promotion. The sale in scheme period may sometime go up by 3-4 times (at times much more) than the usual monthly sale. It precedes and succeeds by a much lower sale due to drying up and over filling of the stock pipeline. New Products:-The sale of new products is generally very unpredictable. Right communication, availability, medical reps training goes a long way in making or breaking a brand. The initial sale is used for filling up the pipeline and is not a true representative of consumer off take.

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 Seasonal products:-The disease pattern and the requirement of certain drugs show seasonal variations. The effect of seasonality is very high on certain products and very low on certain other products.

Technique for Forecasting

XYZ uses a well-defined process for forecasting. This involves getting forecasting from Manugistics of all the SKUs and product segmentation on the basis of different dimensions for next 12 months. The various factors considered are Sales variability Sales Value Sales Volume Seasonality Therapeutic Segments Promotions

This forecast is again validated by Marketing heads of all the Therapeutic segments and is than frozen.

5.2 Understanding Distribution/Supply chain in XYZ

A supply chain is the means by which a company transfers its products from development to the marketplace in order to sell them and generate a profit.It includes all the organizational, operational and value-adding activities needed to manufacture those products and get them to the customers. So, for a pharma company, it covers everything from new product development through to delivery to the hospital, retail pharmacy or patient. Most pharma companies have complex supply chains that are under utilized and inefficient.Moreover they are ill-equipped to cope with the sort of products that are coming down the pipeline.

Figure 2: Supply chain of a Pharmaceutical company

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The flow of finished goods is from manufacturing locations to the Central hub to the CFAs, from CFAs the finished goods go to Distributors and then to Retailers before finally reaching consumers.The Supply Chain of XYZ India has a complex operation as follows: 27 CFAs with average travel distance of 806 miles CFAs with varied turnover created due to different states 2,500 distributors with 25,000 invoices raised in a month

Sources & Flow of finished goods:-

Ankleshwar Site

Goa Site

External Mfg Sites ( 10 ) Third Party Purchases (11 ) Finished Goods Imports ( 9 )
Distributors (2500) Inst. Customers (350) CENTRAL HUB ( BHIWANDI ) C&FAs (27) & Promo Hub (1)
*

Figure 3: Supply chain of XYZ India

5.3 Flow Chart for Demand Planning Process

Demand planning is a multi-step operational supply chain management process used to create reliable forecasts. Effective demand planning can guide users to improve the accuracy of forecasts, align inventory levels with peaks and troughs in demand, and enhance profitability for a given channel or product.

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The approach begins with a statistical forecast. Data sources for the forecast include planned sales orders, customer contracts and intercompany standing orders. The final forecast is shared with key stakeholders, such as suppliers, marketing, finance.

Flow chart for Domestic Planning process:

Figure 3: Domestic planning process Flow chart for Planning process exports:

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Figure 4: Foreign planning process

Sales & Operations Planning(S&OP) Process Window:-

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Figure 5: S&OP planning Process window

5.4 Classification of Inventories on the basis of ABC Analysis

XYZ has currently 18 Licence Loan sites. Out of these 18, I have chosen 2 sites i.e. Encube and Lactose for my analysis as they have continuous production throughout the year.The count of raw materials used in Lactose and Encube Loan License sites is 132 and before we proceed to setting the inventory norms for them it is essential that we classify the inventory based on certain parameters. The objective of classification is to firstly group items with similar characteristics together, secondly to manage the inventory based on the classification and to devise ordering frequency and quantity for each category.

ABC method of classification is one very popular method for inventory classification based on Paretos principle.It says that the maximum value of the inventory is occupied by a few items. Hence, controlling the cost of few items will contribute to the effective control of a large amount of costs

The ABC analysis categorizes the inventory in to 3 classes namely: Class A:- Occupies 80 to 85 % of the total inventory value and contributes only 10 to 15 % of the physical inventory.Are expensive & very strict control should be placed on them.Exact service levels & other parameters must be determined to accurately calculate safety stock.in order to reduce unnecessary inventory holding costs.Cooperation with vendors and strategic sourcing should be employed to reduce lead time variations to reduce risk.Review frequency can be increased to give increased flexibility and reduced on hand Inventory. Class B:- Occupies 10 to 15% of the total inventory value and contributes 30 to 35 % of the physical inventory.Moderate control should be used.The approach should be to allow some deviation from the optimal EOQ and safety stock levels so as to reduce the operation cost. Class C:- Occupies 5 to 10 % of the total inventory value and contributes 50 to 55 % of the physical inventory.It is economic to hold these items in quantities large enough to make the possibility of stock-out negligible. The general concept is to ensure that low cost items will not cause an expensive production or service system to stop

This analysis is done as explained below: Page | 24

a) First of all annual issue volume of all the items which were delivered from all the Suppliers to the Loan Licenses are added together to find total issues in volume.Now, we will calculate the Annual Ruppee volume of each item by multiplying the Annual volume of each inventory item with the cost per unit. b) Then all the items are sorted in descending sequence of their Annual rupee volume. c) Then go on counting the items adding issue value of the item to a 'cumulative issue value' counter. When the value in this counter represents 85% of total issue- value worked out in step (a), after reading a particular item, all the items from top to this item are classified as 'A' category items; d) The reading of items is further continued when after reading a particular item and adding its issue value to 'cumulative issue value' counter, value in the counter is equal to 95% of total issues, we mark all items from item next to last A category item to this item as B category item; e) All remaining items are classified as C category items.

The following tables shows the classification of all inventory items based on the Annual rupee volume:

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Description Pancreatin(DEEC) Tube Soframycin 30gms* Ox Bile Extract Alu Foil Plain 0.04 x 252mm Cellulose Acet Phthalate(Kodalac)(LOC) Alu Foil Festal 0.04 x 252mm (Bel/Rus) White soft paraffin IP Sodium Heparinate Acetone Hemicellulase Carton Soframycin 30gms Tube Soframycin 20 GMS* Alu Foil Festal 0.04 x 252mm (Ukraine)* Liquid Glucose Pancreatin Liquid Paraffin Cetostearyl Alcohol (50:50) Carton Festal 10X10 RUS EXP* Carton Festal 2x10 Russia Export* Sucrose I.P Menthol I.P Tubes Proctocedyl 10 g Rus/Cis -SA Logo* FBC NPD 5-4 E (Festal Belarus) Tube Sofradex Cream 20gm Tube Soframycin 100 gms* FBC 5-150 FBC NPD 5-4-D-Euro-Festal 10x10 Russia Carton Soframycin 20 GMS Carton Festal 4X10 Rus Exp* Cetomacrogol 1000 Leaflet Festal Ukraine** Bopp Tape Transparent 72mm (Printed) Methyl Salicylate IP Tube Combiflam Cream 15gm** FBC NPD 5-4-E-Euro-Festal 2x10 Russia Calcium Carbonate BOPP Film Soframycin 30gms (350mm) Sod Dihydrogen Phosphate Dihydrate Gelatin Carton Proctosedyl 10gm Russia** Butoform Ethyl Vanillin Methyl Paraben I.P Polyethylene glycol 1540 Tube Combiflam Cream 30gms** Plastic BagFestal 2x10 (280x250x650)300G Eudragit L-30-D55(Imp) Castor Oil Propylene glycol I.P Polysorbate 80 V Carton Sofradex Cream 20gm FBC NPD 5-4D (Festal) Alu foil Festal N 252 x 0.04 Carton Soframycin 100gms Carton Festal 10x10 Belarus Export Isopropanol Carton Combiflam Cream 30gms**** Plastic Bag Festal (415x315x600) Carton Combiflam Cream 15gm*** Cannulae Procto 10g (Increased Nozzle) Crosspovidone USP-NF(PVP-CL) Sodium Phosphate(anhydrous)

Quantity

UOM Std Rate B11 1,153.00 1.45 1,202.96 183.00 1,186.37 198.98 81.83 510.45 84.41 286.18 0.34 1.18 199.03 25.06 1,275.75 81.85 79.72 1.84 1.01 35.00 935.07 1.68 30.86 1.21 3.21 46.16 45.20 0.26 1.33 94.03 0.13 33.73 157.35 1.84 29.94 32.71 135.88 199.30 236.96 0.46 2,284.08 1,624.97 371.42 92.22 2.03 5.35 391.26 177.48 90.82 260.29 0.27 46.59 201.00 0.72 1.84 103.23 1.43 7.47 0.74 0.17 1,088.31 209.52

Annual Rupee Volume 12,68,30,000 3,09,02,214 1,64,64,312 1,50,44,671 1,40,28,987 1,04,30,040 91,58,792 88,50,064 85,49,053 78,33,605 72,46,036 58,40,410 54,48,399 44,63,513 44,01,338 40,91,599 40,65,610 39,50,500 38,33,960 35,53,865 19,65,611 31,12,200 24,08,438 23,25,378 21,49,737 16,78,885 13,83,391 12,86,870 12,62,170 12,08,383 11,89,630 11,00,812 9,92,296 9,71,520 9,54,667 8,92,851 8,88,699 8,67,208 8,65,996 7,59,690 7,22,183 7,20,582 6,20,618 6,20,016 6,10,218 6,09,135 6,06,453 5,87,837 5,47,612 5,47,156 5,18,886 4,98,979 4,86,223 4,82,184 4,75,642 4,52,114 4,31,145 3,91,032 3,90,720 3,75,516 3,66,129 3,64,671

% Rupee Volume 36.46517615 8.88476458 4.733691073 4.325526809 4.033505223 2.998764096 2.633264638 2.544501545 2.457957363 2.252257284 2.083324108 1.679189304 1.566481485 1.283314543 1.26543836 1.176384658 1.168912594 1.135817134 1.10231039 1.021779652 0.565137101 0.894795563 0.692455335 0.668574615 0.618075679 0.482700074 0.397741889 0.369990864 0.362889312 0.347424975 0.342033174 0.316496994 0.285297324 0.279323882 0.274478392 0.256705652 0.25551174 0.249332938 0.248984552 0.218420166 0.207636358 0.207176015 0.178435247 0.178262287 0.175445138 0.175133748 0.174362655 0.169010432 0.15744512 0.157313929 0.149186071 0.143462536 0.139795065 0.138633797 0.136752846 0.12998841 0.12395946 0.112426508 0.112336779 0.107965558 0.105266637 0.10484744

Class A A A A A A A A A A A A A A A A A A A A A B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B

1,10,000 Kg. 2,13,11,872 No. 13,687 Kg. 82,211 Kg. 11,825 Kg. 52,418 Kg. 1,11,925 Kg. 17,338 Gm. 1,01,280 Kg. 27,373 Kg. 2,13,11,872 No. 49,49,500 No. 27,375 Kg. 1,78,113 Kg. 3,450 Kg. 49,989 Kg. 50,999 Kg. 21,47,011 No. 37,96,000 No. 1,01,539 Kg. 2,102 Kg. 18,52,500 No. 78,044 No. 19,21,800 No. 6,69,700 No. 36,371 No. 30,606 No. 49,49,500 No. 9,49,000 No. 12,851 Kg. 91,51,000 No. 32,636 No. 6,306 Kg. 5,28,000 No. 31,886 No. 27,296 Kg. 6,540 Kg. 4,351 Kg. 3,655 Kg. 16,51,500 No. 316 Kg. 443 Kg. 1,671 Kg. 6,723 Kg. 3,00,600 No. 1,13,857 No. 1,550 Kg. 3,312 Kg. 6,030 Kg. 2,102 Kg. 19,21,800 No. 10,710 No. 2,419 Kg. 6,69,700 No. 2,58,501 No. 4,380 Kg. 3,01,500 No. 52,347 No. 5,28,000 No. 22,08,920 No. 336 Kg. 1,741 Kg.

Page | 26

FBC NPD 5-4-D-Euro-Festal 4x10 Russia FBC 5-91 Sodium Chloride I.P Ethoform (Benzocaine) Propyl Paraben I.P Leaflet Proctocedyl 10gm Russian Exp*** Poly Ethylene Glycol 400 (Loc) Camphor FBC NPD 5-13C-Euro Proctosedyl10gmRussia FBC 5-92 Tubes Batrafen 15 g (CIS Exp) Titanium Dioxide (R 902) Disodium Edetate (E.D.T.A) (Loc) Carton Festal 2x10 Belarus Export Stearic Acid Tube Sofradex 15 gm Non CIS Export Sodium Hydroxide I.P Collodial Silicon Dioxide (Loc) Carton Festal N (Sugar coated) Carton Sofradex 15 gm Non CIS Export HPMC 5CPS 2910 USP-NF(E5) FBC 5-100 A Carton Festal 10x10 Ukraine* Glyceryl Monostearate (Self Emulsifying) Polyethylene Glycol 4000 (Local) Bopp Film Soframycin 20 GMS-(420 MM) FBC 5-91 E FBC NPD 5-13C-Euro (Proctosedyl10gm Exp) Gum Acacia I.P Carton Batrafen 15 g (Rus Exp)* Leaflet Soframycin Skin Common Microcrystalline Cellulose PH 101 Sodium Metabisulphite I.P Carbomer 980 BOPP Film Sheet 41x71 cms Bopp Film Sheets 43 x 50 cm Leaflet Festal Belarus Exp* Polysorbate 80 ( Tween 80) FBC NPD 5-4 (A) FBC 5-202 (Combiflam Cream) Leaflets Proctocedyl 10 gm (Ukraine)* Tube Soframycin 5 GM* FBC 5-224 (Combiflam Cream 15gm) Anhydrous Lanolin IP (RL001) Polysorbate 60 (Tween 60) FBC 5-132-Euro-Batrafen 15gm Russia Polyethylene Glycol 6000 I.P Polyethylene Glycol 8000 USP/NF Titanium Dioxide USP-NF (Local) Leaflets sofradex 15 gm Carton Soframycin 5 GMS Stearyl alcohol Cetyl Alcohol Sorbiton monosterate BOPP Film Sheets 62x31cm (CFM 15gm) Benzyl Alcohol I.P FBC 5-100 Sofradex (Export) BOPP Film Sheets 800x560mm (30gms) Disodium EDTA IP Bopp Tape Transparent 72mm (Printed) P/S Potassium Hydroxide BP BOPP Film Sheets 410x270mm (CFM 10gms) Plastic Bags (16' x 23') for Batrafen FBC 5 FRP 1 Glycerine I.P Lactic Acid BOPP Film Sheet 65 x 35 cms (SSC 30gm) Eudragit L-30-D55 Talcum I.P (Loc) Sticker Label FestalUkraine SecuritySeal

7,934 No. 4,950 No. 10,651 Kg. 316 Kg. 732 Kg. 16,51,500 No. 3,606 Kg. 841 Kg. 8,258 No. 6,697 No. 1,33,464 No. 1,223 Kg. 258 Kg. 2,00,000 No. 2,352 Kg. 1,41,200 No. 125 Kg. 476 Kg. 1,60,200 No. 1,41,200 No. 106 Kg. 3,844 No. 59,700 No. 801 Kg. 1,127 Kg. 684 Kg. 1,270 No. 3,013 No. 282 Kg. 1,33,464 No. 12,70,000 No. 231 Kg. 870 Kg. 50 Kg. 69,623 No. 86,464 No. 4,59,800 No. 501 Kg. 1,602 No. 1,941 No. 4,01,500 No. 51,220 No. 1,840 No. 100 Kg. 70 Kg. 1,089 No. 258 Kg. 62 Kg. 114 Kg. 1,41,200 No. 51,220 No. 116 Kg. 116 Kg. 30 Kg. 14,640 No. 20 Kg. 282 No. 6,030 No. 20 Kg. 162 No. 30 Kg. 12,080 No. 1,126 No. 325 No. 14 Kg. 8 Kg. 638 No. 0 Kg. 33,205 Kg. 1,81,82,000 No.

45.20 71.31 30.66 960.52 413.82 0.18 80.74 344.17 29.44 32.70 1.64 173.77 801.77 1.01 76.65 1.18 1,292.91 321.10 0.94 1.00 1,218.30 31.65 1.84 135.59 92.83 135.88 71.31 29.44 292.31 0.60 0.06 310.75 76.65 1,241.47 0.88 0.66 0.12 110.05 32.60 26.04 0.12 0.94 23.38 354.96 423.88 26.69 110.05 434.93 204.41 0.16 0.24 100.85 93.94 316.51 0.64 419.04 28.77 1.33 374.54 38.84 178.53 0.36 3.40 11.37 252.45 219.55 0.66 541.77 30.66 0.29

3,58,617 3,52,985 3,26,566 3,03,698 3,02,828 2,97,270 2,91,181 2,89,392 2,43,116 2,18,992 2,18,881 2,12,587 2,06,950 2,02,000 1,80,308 1,66,616 1,61,072 1,52,729 1,50,588 1,41,200 1,28,813 1,21,663 1,09,848 1,08,580 1,04,619 93,010 90,564 88,703 82,355 80,078 76,200 71,686 66,705 62,136 61,268 57,066 55,176 55,117 52,225 50,544 48,180 48,147 43,019 35,531 29,820 29,065 28,387 26,964 23,318 22,592 12,293 11,656 10,857 9,543 9,370 8,423 8,113 8,020 7,498 6,292 5,361 4,349 3,828 3,695 3,557 1,765 421 9 10,18,053 52,72,780

0.103106716 0.101487361 0.093891862 0.087316939 0.087066662 0.085468761 0.083718023 0.083203711 0.069898685 0.06296285 0.062930953 0.061121488 0.05950056 0.05807747 0.051840648 0.047904138 0.046310176 0.043911538 0.043295892 0.040596727 0.037035398 0.034979485 0.031582643 0.031218214 0.03007936 0.026741394 0.026038171 0.025503117 0.02367819 0.023023519 0.021908432 0.020610687 0.019178494 0.017864737 0.017615368 0.016407242 0.015863775 0.015846875 0.015015384 0.014531915 0.013852339 0.013842794 0.012368546 0.01021574 0.008573603 0.008356661 0.008161534 0.007752582 0.006704289 0.006495476 0.00353433 0.003351167 0.003121553 0.002743665 0.002693875 0.00242163 0.002332627 0.002305819 0.00215585 0.00180905 0.001541427 0.001250333 0.001100712 0.00106243 0.001022614 0.000507511 0.000121066 2.49225E-06 0.292702734 1.515988737

C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C

Table 4: Inventory Classification of items Page | 27

For the purpose of Inventory Control, A category items are most important.Therefore, they are closely monitored at highest level at very frequent intervals. Some important inventory statistics for these two sites are: Number of Inventory items : 132 Number of Raw material supplied : 1076 tones Number of Packing Materials Supplied : 10.5 Cr

ABC Classification of Inventory:

Number of Items Stocked

Percent of Number of Items Stocked

Percent of Annual Rupee Volume

Class

21 41 70

15.91 31.06 53.03

85.38 10.85 3.77

A B C

Table 5: Snapshot of ABC classification of inventory

5.5 Pareto chart for ABC Class items

Figure 5: Pareto Chart of ABC Class items

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Control on the basis of ABC Classification : 1.Have plenty of low-valued items - C items represent about 53 % of the items and accounts for only 4 % of the total inventory value. Carrying extra stock of C items adds little to the total value of the inventory. C items are really only important if there is a shortage of one of them so a supply should always be on hand. Simple or no records are to be maintained for C items perhaps two bin system or periodic review system needs to be incorporated. 2) Use the money and control effort saved to reduce the inventory for high valued items A items represent 15 % of the items and account for about 85 % of the value. They are extremely important and deserve the tightest control and the most frequent review.

5.6 Ordering Policy for Inventory items:Ordering policy for the inventory items was deviced based on the factors like Annual consumption of raw materials, shelf life of raw materials, variations in demand leading to fluctuations in consumption of raw materials,lead time of the raw materials and variations in lead times.The predetermined level of safety stock for the inventory items was used for the

Ordering policy for C class items delivery at Lactose:

1. Propyl Paraben I.P.(Shelf Life = 5 yrs) Raw material Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Opening Stock Received Quantity

3.3

11.7

10.3

9.2

8.4

6.9

5.8

5.3

14.9

14.9

14.8

13.2

10.0

10.0

Found Excess

Return to Store

Total issued

1.5

1.5

1.1

0.8

1.5

1.1

0.5

0.3

0.2

1.5

0.9

Closing Stock

11.7

10.3

9.2

8.4

6.9

5.8

5.3

14.9

14.9

14.8

13.2

12.4

Table 6: Ordering Policy for Propyl Paraben Annual Demand = 10.9 So, we can have one Annual Order of 20.

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2. Sodium Chloride(Shelf Life = 5 years)

Raw material Jan Feb Mar Apr May Jun Jul Aug Sep Oct Total issued 725 788 570 442 840 651 180 60 90 Receipt 2,000 2,000 POHI(2000) 1,275 487 1,917 1,475 635 1,984 1,803 1,743 1,743 1,653 Order release 2,000 2,000 Table 7: Ordering Policy for Sodium Chloride

Nov Dec 900 505 753 247 2,000

We can have only 1 Annual order of 8000 with staggered deliveries of 2000 each in Feb, May and Dec. The staggered delivery is triggered on reaching ROP of 1500. The inventory levels will be as

Figure 6: Proposed Inventory Levels for Sodium Chloride 3. Talcum I.P. (Shelf Life = 5 yrs) Raw material Total issued Receipt 2,344 0 2,523 0 1,912 4500 1,382 0 2,630 4500 1,893 0 878 4500 195 0 0 327 0 2,635 0 1,577 0

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

POHI(6000) 3,656 Order Releases 0

1,133

3,722

2,340

4,210

2,317

5,938

5,743

5,743

5,416 2,781

1,204

4500

4500

4500

4500

Table 8: Ordering Policy for Talcum We can have only 1 Annual order of 24,000 having initial delivery 0f 6000 and staggered deliveries of 4500 each in Feb, Apr, Jun and Dec. The staggered delivery is triggered on reaching ROP of 4500

Page | 30

The inventory levels will be as

Inventory Level
7,000 6,000 5,000 4,000 3,000 2,000 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1,133 3,656 3,722 2,340 4,210 2,317 2,781 1,204 5,938 5,743 5,743 5,416

Figure 6: Proposed Inventory Levels for Sodium Chloride

Ordering policy for C class items delivery at Encube:

Propyl paraben I.p.(shelf life- 5 years)
Raw material Opening Stock Received Quantity Found Excess Return to Store Total issued Rejected Qty Closing Stock Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 12.0 92.8 70.6 49.2 23.3 50.8 30.4 4.0 175.2 152.5 225.4 191.9 100.0 50.0 200.0 100.0 0.1 0.1 0.2 19.3 22.2 21.4 25.8 22.5 20.5 26.4 28.7 22.6 27.1 33.7 32.6 0.1 92.8 70.6 49.2 23.3 50.8 30.4 4.0 175.2 152.5 225.4 191.9 159.4

Table 9: Ordering Policy for Propyl paraben Annual Demand = 302.95 So we can have an annual order of 400.

Ordering policy for A class items

As A class items are of higher annual rupee volume, very strict control should be placed on them.Exact service levels & other parameters must be determined to accurately calculate safety stock.in order to reduce unnecessary inventory holding costsThe order quantity will be decided by taking into account the opening stock of inventory and the demand for next two months.the inventory will be reviewed at the end of every month to get the ordering quantity.

Page | 31

1. Liquid paraffin(Shelf Life = 5 years)

Current ordering Policy Raw material Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Opening Stock 4,754.66 9,463.84 10,219.14 11,037.10 7,698.45 4,804.12 5,792.20 5,999.38 2,286.66 2,937.95 3,074.55 2,347.47 Received Quantity 7,224.00 3,612.00 3,612.00 Total issued Closing Stock 3,791.10 3,612.00 3,612.00 3,612.00 3,612.00 10,817.00

2,514.82 2,863.81 2,784.61 3,339.70 2,888.30 2,774.31 3,404.82 3,689.70 2,960.71 3,468.51 4,314.61 4,070.63 9,463.84 10,219.14 11,037.10 7,698.45 4,804.12 5,792.20 5,999.38 2,286.66 2,937.95 3,074.55 2,347.47 9,089.25

Table 10: Current Ordering Policy for Liquid paraffin

Proposed Ordering Policy Raw material Jan Feb Mar Apr May Total issued 2,514.82 2,863.81 2,784.61 3,339.70 2,888.30 Receipt 0 1800 3600 3600 1800 POHI(4754.66) 2,239.84 1,176.03 1,991.42 2,251.72 1,163.42 Order Releases 1800 3600 3600 1800 3600

Lead time = 1 months Safety Stock = 1000 Jun Jul Aug Sep Oct Nov Dec 2,774.31 3,404.82 3,689.70 2,960.71 3,468.51 4,314.61 4,070.63 3600 3600 3600 3600 1800 5400 3600 1,989.11 2,184.29 2,094.59 2,733.88 1,065.37 2,150.76 1,680.13 3600 3600 3600 1800 5400 3600

Table 11: Proposed Ordering Policy for Liquid paraffin

Inventory levels for the proposed ordering policy and existing ordering policy:
12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Closing Stock(Original) Closing Stock(Proposed)

Figure 7: Comparison of Inventory Levels for Liquid paraffin

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2. Aluminium Foil(Shelf Life = 8 years)

Current ordering Policy Raw material Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Opening Stock 11,578.22 10,742.88 17,604.95 16,722.39 10,886.28 10,543.33 4,685.94 5,174.93 7,474.03 7,474.03 9,639.39 9,359.76 Received Quantity 7,242.41 12,823.35 4,209.56 8,066.40 3,115.55 6,108.67 3,067.63 3,090.20 3,709.56

Total issued 8,083.83 5,964.24 5,101.52 5,852.46 7,058.95 5,885.15 2,640.73 3,804.90 898.27 3,373.29 8,469.11 Closing Stock 10,742.88 17,604.95 16,722.39 10,886.28 10,543.33 4,685.94 5,174.93 7,474.03 7,474.03 9,639.39 9,359.76 4,600.22 Table 12: Current Ordering Policy for Aluminium Foil

Proposed Ordering Policy Raw material Total issued Receipt POHI(11578.22) Order Releases Jan Feb Mar Apr May 8,083.83 5,964.24 5,101.52 5,852.46 7,058.95 0 6000 6000 6000 6000 3,494.40 3,530.16 4,428.64 4,576.17 3,517.23 6000 6000 6000 6000 6000

Lead time = 1 months Safety Stock = 3000 Jun Jul Aug Sep Oct Nov Dec 5,885.15 2,640.73 3,804.90 898.27 3,373.29 8,469.11 6000 3000 3000 0 3000 3000 9000 3,632.07 3,991.35 3,186.45 3,186.45 5,288.17 4,914.88 5,445.78 3000 3000 0 3000 3000 9000 0

Table 13: Proposed Ordering Policy for Aluminium Foil

Inventory levels for the proposed ordering policy and existing ordering policy:

18,000.00 16,000.00 14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Closing Stock(Original) Closing Stock(Proposed)

Figure 8: Comparison of Inventory Levels for Aluminium Foil

Page | 33

3. Liquid glucose

Current ordering Policy Raw material Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Opening Stock 395.90 211.50 11.10 445.75 341.15 132.75 580.15 508.15 492.15 492.15 475.55 259.55 Received Quantity Total issued Closing Stock 587.65 600.00 600.00

184.40 200.40 153.00 104.60 208.40 152.60 72.00 16.00 16.60 216.00 128.40 211.50 11.10 445.75 341.15 132.75 580.15 508.15 492.15 492.15 475.55 259.55 731.15

Table 14: Current Ordering Policy for Liquid Glucose

Proposed Ordering Policy Raw material Total issued Receipt POHI(395.90) Order Releases Jan Feb Mar Apr May 184.40 200.40 153.00 104.60 208.40 0 300 0 300 300 211.50 311.10 158.10 353.50 445.10 300 0 300 300 0

Lead time = 1 months Safety Stock = 150 Jun Jul Aug Sep Oct Nov Dec 152.60 72.00 16.00 16.60 216.00 128.40 0 0 0 0 0 300 300 292.50 220.50 204.50 204.50 187.90 271.90 443.50 0 0 0 0 300 300

Table 15: Proposed Ordering Policy for Liquid Glucose

Inventory levels for the proposed ordering policy and existing ordering policy:

800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Closing Stock(Original) Closing Stock(Proposed)

Figure 9: Comparison of Inventory Levels for Liquid Glucose

Page | 34

Cost-Benefit Analysis:- By just controlling the inventory of A class items, a cost reduction of
Rs. 27 crores is achieved. Current Annual inventory Value 1,83,33,037 5,09,27,949 2,10,28,190 2,40,72,040 1,17,55,893 1,07,20,336 2,39,96,571 39,12,252 1,04,07,747 52,37,923 1,20,29,021 1,17,308 16,66,37,432 61,18,294 61,34,924 37,95,718 34,25,644 29,86,802 95,27,746 39,11,64,827

Item Description

Proposed Annual Inventory value

Proposed Savings

Tube Soframycin 30gms* Ox Bile Extract Alu Foil Plain 0.04 x 252mm Cellulose Acet Phthalate(Kodalac)(LOC) Alu Foil Festal 0.04 x 252mm (Bel/Rus) White soft paraffin IP Sodium Heparinate Acetone Hemicellulase Carton Soframycin 30gms Alu Foil Festal 0.04 x 252mm (Ukraine)* Liquid Glucose Pancreatin Liquid Paraffin Cetostearyl Alcohol (50:50) Carton Festal 10X10 RUS EXP* Carton Festal 2x10 Russia Export* Sucrose I.P Menthol I.P

27,56,218 2,02,76,336 21,39,587 1,33,27,206 17,74,367 18,59,220 1,14,35,657 26,05,585 65,55,673 6,14,577 21,44,652 82,813 3,28,87,802 18,59,675 22,53,063 16,32,485 8,10,567 10,96,802 65,05,469 11,26,17,753

1,55,76,819 3,06,51,613 1,88,88,603 1,07,44,834 99,81,526 88,61,116 1,25,60,914 13,06,667 38,52,074 46,23,346 98,84,369 34,495 13,37,49,630 42,58,619 38,81,861 21,63,233 26,15,077 18,90,000 30,22,277 27,85,47,073

Total Table 16: Cost Benefit Analysis

Page | 35

Conclusion & Scope for Future Work

6.1 Conclusion

A strategic approach was followed towards managing the raw material inventories of major Active Pharmaceutical ingredients for external manufacturing sites. After a detailed analysis and study the following conclusions can be drawn: All the items are classified on the basis of ABC classification. Better Control of A-class items Management decision on ordering policy for inventory must be based on the class to which an item belongs taking into consideration the demand,the lead time of Supplier and the space occupied by the inventory item.

6.2 Future Scope of Work

The same approach of optimizing inventory levels and ordering policy can be extended for all the 18 Loan License sites. KANBAN and Just in time(JIT) can be implemented for local items depending on Supplier rating for A class items. Supplier development and upgradartion to reduce the fluctuations in lead time of Suppliers Forecasting based on secondary sales data rather than the currently used forecasting on primary sales data.

6.3 Academic Contributions

Following subjects helped immensely in successfully executing the project 1. Forecasting techniques 2. Demand planning 3. Methods of inventory Control 4. Safety stock Concept 5. Ordering policies for inventory items

The knowledge of various forecasting techniques helped me in understanding the forecasting process of XYZ. Demand Planning played a vital role in the project. The knowledge of how to generate demand based on forecasting and on-hand stock helped in executing the project much better.The understanding of various methods of Inventory control was used in analyzing the various conditions of the inventory management required in the project.The various ordering policies were used and the savings were determined based on those policies.The knowledge of various ordering policies helped me in compeleting the project successfully.

Page | 36

Besides the above stated three topics, knowledge gained from all other courses helped in understanding the business in a holistic way, which further enabled me to execute my project keeping all the constraints in mind.

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Annexure I List of tables

Table 1: Financials of XYZ Group Table 2: List of Top 10 Indian Pharmaceutical companies Table 3: Literature review Table 4: Inventory Classification of items Table 5: Snapshot of ABC classification of inventory Table 6: Ordering Policy for Propyl Paraben Table 7: Ordering Policy for Sodium Chloride Table 8: Ordering Policy for Talcum Table 9: Ordering Policy for Propyl paraben Table 10: Current Ordering Policy for Liquid paraffin Table 11: Proposed Ordering Policy for Liquid paraffin Table 12: Current Ordering Policy for Aluminium foil Table 13: Proposed Ordering Policy for Aluminium foil Table 14: Current Ordering Policy for Liquid Glucose Table 15: Proposed Ordering Policy for Liquid Glucose Table 16: Cost Benefit Analysis

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Annexure II List of figures

Figure 1: XYZ Organization Structure Figure 2: Supply chain of a Pharmaceutical company Figure 3: Domestic planning process Figure 4: Foreign planning process Figure 5: Pareto Chart for ABC Class items Figure 6: Proposed Inventory Levels for Sodium Chloride Figure 6: Proposed Inventory Levels for Talcum Figure 7: Comparison of Inventory Levels for Liquid paraffin Figure 8: Comparison of Inventory Levels for Aluminium Foil Figure 9: Comparison of Inventory Levels for Liquid Glucose

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References
9.1 Related to XYZ India

1. XYZ Group website - www.XYZ.com 2. XYZ website (India) - www.XYZ-aventis.in 3. Aventis Pharma Limited (India) - www.aventispharmaindia.com 4. XYZ Pasteur Private Limited (India) - www.XYZpasteur.in 5. Shantha Biotechnics Private Limited(India) - www.shanthabiotech.com

9.2 Websites related to Pharmaceutical Sector

6. Indian Journal of Pharmaceutical Sciences- http://www.journalonweb.com 7. Indian Pharmaceutical Association (IPA) - http://www.ipapharma.org/ 8. Pharmacy Council of India - http://www.pci.nic.in/ 9. Department of Pharmaceuticals - http://pharmaceuticals.gov.in

9.3 Related to Inventory Management & Operations

9.3.1 Books

10. J. R. Tony Arnold, Introduction to materials management, fifth edition,2007 11. Jay Heizer, Barry Render, Jagadeesh Rajashekhar, Operations Management,ninth edition 2009 12. Tony Wild , Best practices in inventory management 13. Production and inventory control ,McGraw-Hill, January 1996 14. Max Muller, Essentials of inventory management 9.3.2 Websites

15. www.inventorymanagement.com 16. www.inventorymanagementreview.org 17. www.inventoryops.com

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