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RANBAXY LABS LTD.

SUMMER TRAINING REPORT


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

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Table of contents
Certificate 04
Preface 05
Acknowledgement 03
Abstract 07

CHAPTER 1
Introduction 10
Objectives & Scope 12
Company Profile 16
Growth of Ranbaxy 25
Life Of Ranbaxy 30
Various divisions of Ranbaxy 32
Various Departments 33
Organization Chart 37
Ranbaxy Manufacturing Plant Mohali 38

CHAPTER 2
Literature Review 39

CHAPTER 3
Research Methodology 41

CHAPTER4
Inventory Management 42
Overview Of Inventories 43
Overview Of Methods 48
Ratios 64
Control Manufacturing 65
Material Resource Planning 80

CHAPTER 5
Suggestions 83
Conclusion 84
CHAPTER 6
BIBLIOGRAPHY 85

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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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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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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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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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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

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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

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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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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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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 brand-
building 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 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 multi-
disciplinary 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 out-
licensed 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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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 Mr. Takashi Shoda


Chief Executive Officer & Non Executive &
Managing Director Non Independent Director

Dr. Tsutomu Une


Chairman
Non Executive &
Non Independent Director

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Dr. Anthony H. Wild Mr. Rajesh V. Shah Mr. Akihiro Watanabe


Independent Director Independent Director 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 Mr. Ramesh L. Adige Mr. Dipak Chattaraj


Chief Executive Officer & President, Corporate Affairs & President, Corporate
Managing Director Global Corporate Development & Strategy
Communications

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Dr. Sudarshan K. Arora Mr. Omesh Sethi Mr. Arun Sawhney


President, R&D (Generics, Chief Financial Officer President, API GBU, Global
NDDS & Drug Development) Manufacturing & Supply Chain

Mr. Bhagwat Yagnik Mr. David Briskman Dr. T G Chandrashekhar


Head – Global Human Chief Information Officer Vice President, Global Quality
Resources & 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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Africa Asia Pacific CIS

Global Consumer
Europe Global API
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 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, MCC-
South 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

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Nervous System, Respiratory, Dermatology, Orthopedics, Nutritionals and Urology


segments, clearly indicates that the Company has strengthened its presence in the fast-
growing chronic and lifestyle disease segments.

Top 20 Molecules

• Simvastatin
• AmoxiClav Potassium
• Isotretinoin
• Amoxycillin and Combinations
• Ciprofloxacin and Combinations
• Ketorolac Tromethamine
• Omeprazole and Combinations

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• Cefuroxime Axetil
• Cephalexin
• Loratadine and Combinations
• Clarithromycin
• Ginseng+Vitamins
• Diclofenac and Combinations
• Ranitidine
• Cefaclor
• Cefpodoxime Proxetil
• Efavirenz
• Atorvastatin and Combinations
• Fenofibrate
• Ofloxacin and Combinations

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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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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US patent granted for


cephalosporins.

1993  Company enters into an

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’s GDR listed in


Luxembourgh Stock Exchange.

1995  Acquisition of ohm


Laboratories, a manufacturing
facility in the US. Inauguration
of FDA approved, state-of-the-
art 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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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  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.

2002 Receives approval from FDA to market Midazolam


Hydrochloride Syrup 2 Mg base/ ml. Ranbaxy

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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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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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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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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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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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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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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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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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ORGANISATION CHART

Senior VP

VP

Director Director Director Director


Special projects
Manufacturing QC

GM GM GM GM GM
Finance HR E&F InfoTech
Production
SM
SM SM SM SM SM PP

SM SM SM SM M

SM SM M M

VP Vice President QC Quality Control


GM General Manager HR Human Resource
SM Senior Manager E&F Engineering & Facilities
M Manager PP Production Planning
ERP Enterprise Resource
Planning

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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

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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.

34
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

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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

37
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.

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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.

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RANBAXY LABS LTD.

Example 1 (Company A)
: Purchased 1,000 units of merchandise at Rs.30 per unit.

Under Perpetual inventory system

Debit Credit

Merchandise Inventory 30,000

Accounts payable 30,000

Under Periodic inventory system

Debit Credit

Purchases 30,000

Accounts payable 30,000

Under periodic inventory system, all purchases during the accounting


period are recorded in the "Purchases" account.

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RANBAXY LABS LTD.

: Sold 200 units of merchandise at Rs.50 per unit on credit.

Under Perpetual inventory system

Debit Credit

Accounts Receivable 10,000

Sales 10,000

Debit Credit

Cost of goods sold 6,000

Merchandise inventory 6,000

Under perpetual inventory system, changes in merchandise inventory


account are recorded after each transaction.

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RANBAXY LABS LTD.

Under Periodic inventory system

Debit Credit

Accounts Receivable 10,000

Sales 10,000

Under periodic inventory system, the following journal entry is recorded


at the end of accounting period.

Debit Credit

Merchandise Inventory 24,000

Purchases 24,000

Quantity of merchandise inventory


= 1,000 units purchased - 200 units sold = 800 units left

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RANBAXY LABS LTD.

Cost of merchandise inventory


= 800 units x Rs.30 per unit cost = Rs.24,000
Debit Credit
Cost of
Cost of goods sold 6,000 goods
sold
Purchases 6,000 = 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

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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.

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RANBAXY LABS LTD.

Example 1 (Company A)
Inventory transactions in May 2006.
Units
Inventory
Date Transactions Purchased Unit Cost
Units
(Sold)
Beginning
May 1 700 Rs.10 700
Inventory
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 Sale (400) ?? 700
May 27 Sale (100) ?? 600
Ending
May 31 ??
Inventory

Ending Inventory = Beginning Inventory + Units Purchased - Units


Sold
= 700 + 900 - 1,000 = 600 units

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RANBAXY LABS LTD.

Example 1-1 (Perpetual Recording, FIFO Valuation)


FIFO valuation under perpetual inventory system

Inventory
Date Transactions Units Sold Unit Cost
Units
Beginning
May 1 700 Rs.10 700
Inventory
May 3 Purchase 100 Rs.12 800
May 8 Sale (*1) (500) ?? 300
May 15 Purchase 600 Rs.14 900
May 19 Purchase 200 Rs.15 1,100
May 25 Sale (*2) (400) ?? 700
May 27 Sale (*3) (100) ?? 600
Ending
May 31 ??
Inventory

(*1) 500 units sold


= 700 units from beginning inventory of at Rs.10 unit cost.

Cost of goods sold = 500xRs.10 = Rs.5,000

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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

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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

Inventory
Date Transactions Units Sold Unit Cost
Units
Beginning
May 1 700 Rs.10 700
Inventory
May 3 Purchase 100 Rs.12 800
May 8 Sale (*1) (500) ?? 300
May 15 Purchase 600 Rs.14 900
May 19 Purchase 200 Rs.15 1,100
May 25 Sale (*2) (400) ?? 700
May 27 Sale (*3) (100) ?? 600
Ending
May 31 ??
Inventory

(*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

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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.

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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

Inventory
Date Transactions Units Sold Unit Cost
Units
Beginning
May 1 700 Rs.10 700
Inventory
May 3 Purchase 100 Rs.12 800
May 8 Sale (*1) (500) ?? 300
May 15 Purchase 600 Rs.14 900
May 19 Purchase 200 Rs.15 1,100
May 25 Sale (*2) (400) ?? 700
May 27 Sale (*3) (100) ?? 600
Ending
May 31 ??
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 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

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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

Inventory
Date Transactions Units Sold Unit Cost
Units
Beginning
May 1 700 Rs.10 700
Inventory
May 3 Purchase 100 Rs.12 800
May 8 Sale (*1) (500) ?? 300
May 15 Purchase 600 Rs.14 900
May 19 Purchase 200 Rs.15 1,100
May 25 Sale (*2) (400) ?? 700
May 27 Sale (*3) (100) ?? 600
May 31 Ending ??

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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 May 19 purchases at Rs.15 unit cost
+ 600 units from May 15 purchases at Rs.14 unit cost
+ 100 units from May 3 purchases at Rs.12 unit cost
+ 100 units from 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
Date Transactions Units Sold Unit Cost Average
Units
Unit Cost
Beginning
May 1 700 Rs.10 700 Rs.10
Inventory
Rs.10.25
May 3 Purchase 100 Rs.12 800
(*1)
May 8 Sale (500) ?? 300 Rs.10.50
Rs.12.75
May 15 Purchase 600 Rs.14 900
(*2)
Rs.13.16
May 19 Purchase 200 Rs.15 1,100
(*3)
May 25 Sale (400) ?? 700 700
May 27 Sale (100) ?? 600 600
Ending
May 31 ??
Inventory

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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]

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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

Inventory
Date Transactions Units Sold Unit Cost
Units
Beginning
May 1 700 Rs.10 700
Inventory
May 3 Purchase 100 Rs.12 800
May 8 Sale (*1) (500) ?? 300
May 15 Purchase 600 Rs.14 900
May 19 Purchase 200 Rs.15 1,100
May 25 Sale (*2) (400) ?? 700
May 27 Sale (*3) (100) ?? 600
Ending
May 31 ??
Inventory

Under periodic inventory system, cost of inventories is calculated at the


end of each accounting period (on May 31 in this example).

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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) -

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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
purchase or sale. RANBAXY LABS LTD.
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 Credit
Merchandise Inventory 30,000
Accounts payable 30,000

Under Periodic inventory system

Debit Credit
Purchases 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:

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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.

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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:

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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

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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

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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 as-

1. 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

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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

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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'
Input
S.no. It_Desc Uom Rate s Std.Cost Yield Usage
STD. Actual Var. Var.

256.4 1200.0 1200.0


1 Pencillin-G Bou 0 1.000 256.400 0 0 0.000
Alpha
Glycrine 290.0
2 base KG 0 0.250 72.500 300.00 400.00 (0.029)
Ethyl 3900.0 4500.0
3 Acetate L 45.00 3.250 146.250 0 0 (0.027)
2160.0 2100.0
4 Toluene L 21.50 1.800 38.700 0 0 0.001
3300.0 4000.0
5 Methanol L 30.15 2.750 82.913 0 0 (0.021)
Pivaloyl 175.6
6 Chloride KG 0 0.560 98.336 672.00 950.00 (0.049)
1260.0
7 HCL Comm. KG 10.96 1.050 11.508 0 900.00 0.004
1100.0
8 Hyflow KG 35.00 0.80 28.000 960.00 0 (0.005)

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Sodium 2640.0 2200.0


9 Chloride KG 3.50 2.20 7.700 0 0 0.002
Nitrogen 365.0 2064.0 2500.0
10 Gas CDM 0 1.72 627.800 0 0 (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.

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.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.

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 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.

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 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

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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 Stocks Over-under


vendor party sum provided
Drugo 0.35 0.10 0.25
Chemicals
Parabolic 450 210 240
Eskay Fine 80 0 80
Chem.

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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)

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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. Inventory holding/


party days
Saurav Penta-4 50
Shanti Citalopram 41

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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.

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MATERIAL RESOURCE PLANNING

Material requirement planning is essentially computerized


Planning and control system for the effective management
of production and inventories in a manufacturing
environment. MRP derives its Power From the very
important distinction between independent demand
inventories. Finished goods and S pare Parts are independent
demand inventories. Dependent demand is derived From the
demand Of finished goods or “end items.’

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An MRP system is driven by the master schedule


which specifies the end items or output of the
production function. All future demands for work in
progress and raw materials should be dependent on the
master schedule and be derived by the MRP system
from it. Since condition are usually changing ; the
master schedule is a far better basis than past demand
for planning raw materials and work in progress inventory.

Using MRP, the master schedule is exploded into


purchase orders for scheduling the factory. This process
of the parts explosion requires a detailed bill of
materials which lists each of the parts needed to
manufacture one unit of each item. The required parts may
include assemblies, subassemblies, and manufactured parts
and purchased 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 parts explosion is for


the production and purchase of lead items. 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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takes to get parts [lead time] . This procedure of offsetting


ensures that each component will be available in time to
support the master schedule.

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 Forecasts
Demand

M. Schedule
for production

Inventory Material Information on


Status Requisite plan product design,
structure

Manuf. & Capacity No


Proc. Lead adequate
time Yes

Final master prod.


Schedule

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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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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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