Case Study of Pharma & Chemical Industries Physical Inventory Stock

Published At: 11-Mar-2019

Problem

One of our important clients in Mahad MIDC Area is a leading manufacturer & exporter in pharma products.

Their yearly turnover is around INR 120 crores = the US $ 1.7 MIO

Our Client was in the middle stage of ERP implementation.

During implementation phase all the records of stocks of all type of materials i.e. Raw Materials, Primary / Secondary Packing Materials, Semi-Finished (WIP) Materials, Finished Materials & even engineering materials stocks were kept manually.

Engineering materials stocks were not updated on day to day basis for more than 2 months.

Even replenishment of stocks we were done manually.

The corporate management was worried as there might be chances of the following:

1.If Critical material not available for production Or

2.Critical Engineering Material not available for Repairs & Maintenance then there will be production brake down & production loss as time lost is lost.

So they invited APMH & Associates LLP for the following.

1.100% physical inventory stock taking.

2.To audit production site processes of P2P(Procure to Pay) , Issue of Materials & O2C(Order to Cash)


Solution

APMH found the solution by doing the following :

APMH has deployed 4 well-experienced persons’ team for stock audit.

  • One senior person of 36 years’ experience in logistics, ERP implementations & Risk Reduction Audits in 3 MNCs (German, Swiss, American).

  • One Associate with 6 years’ experience in Accounts & Stock Taking in MNCs too.

  • One Associate with 5 years’ experience in Accounts & Stock Taking.

  • One Article pursuing CA.

Total 4 persons were involved in stock taking audit only for 2 days as below :

  • 1 senior person to check Processes & manual records

  • 1 Associate for FG & SFG- 100%

  • 1 Associate for RM- 100%

  • 1 Article for Primary & Secondary PM- 100% &

  • Engineering materials randomly as stocks were not updated for 2 months.

Audit finding were as below which were critical for production.

  • 1 costly & critical Raw Material found less than record.

  • Many Engineering materials were mismatched.

It was suggested to carry out Physical Inventory stock taking perpetually throughout the year as below.

1.A Category - To carry on physical inventory stock taking of Critical/Costly/Restricted Raw Materials/ PM/ Engineering Materials monthly basis = 12 Cycles in a year.

2.B Category - To carry on physical inventory stock taking bio monthly basis = 6 Cycles in a year.

3.C Category - To carry on physical inventory stock taking quarterly basis = 4 Cycles in a year.


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