Application of Inventory Management System

Executive Summary

This internship report based on the three months long internship program that I had undergone in Beximco Pharmaceuticals Limited from June 22, 2008 to October 09, 2008 as a requirement of my BBA program under Development of Business Administration, Shahjalal University of Science & Technology, Sylhet. As the apprentice of BBA program I have tried my best to gather all necessary information and explanations from BPL to prepare this report.

Namely this report is “Application of Inventory Management System: A study on Beximco Pharmaceuticals Ltd.”. This report is comprised of two broad parts: first one is Organization part and second or last part is Project part. The heart focus of this report is on the Project part and the organization part represents the overall picture of this report.

The specific objectives of this study or report are to know, to determine the overall techniques or procedures of Inventory Management System of BPL and how to keep its inventory more effectively then before. For this purpose I have prepared this report in the light of the secondary data of BPL and its various employees.

In this report, I have shown the different diagrams which are related with the inventory management system. Those diagrams or forms are represents the overall picture of how record inventory manually and systematically. Also I have represented the current and previous condition of inventory and a comparative explanation of Square with graphs. As a result, that helps to understand to know about organization conditions easily.

Finally, Beximco Pharmaceuticals Ltd (BPL) is one of the leading edge pharmaceutical companies and is a member of the BEXIMCO Group. The strategic strengths of Beximco Pharma are its strong brand recognition, highly skilled work force and diversified business mix. This report casts a flash on BPL’s Inventory Management System, its Cycle and the related procedures with techniques.

Table of Contents

Topics	Page Number
Title Page	ii
Letter of Certificate	iii
Letter of Transmittal	iv
Acknowledgement	v
Executive Summary	vi
Chapter-1 Research Methodology	1
1.2 Rational of the study	2
1.3 Scope of the study	2
1.4 Objectives of the study	3
1.5 Methodology of the study t	3
1.6 Data Processing and Analysis	4
1.7 Limitation of the study	4
Chapter-2 An overview on organization	5
2.1 History	6
2.2 Mission, Vision of Beximco Pharmaceuticals Limited	7
2.3 Management of the company	8
2.4 Chronology of Progress	10
2.5 Company Profile	12
2.6 Organizational Structure	13
2.7 Training & Development	13
2.8 R & D, Fine Chemicals	15
2.9 Quality ,Technology	15
2.10 Social Responsibilities	16
2.11 Responsibility & Happiness	17
2.12  Largest Pharmaceutical Exporter	18
Chapter-3  Background of the study	19
3.1 Inventory Management	20
3.2 Objective of Inventory Management	20
3.3 Importance Inventory Management	21
3.4 Purpose of Inventory Management	22
3.5 Key Functions	22
3.6 Types of Inventory	23
3.7 Inventory Cycle	25
3.7 Sources of Raw Materials	26
3.9 The Process of Local purchase	27
3.10 Sample of purchase order	28
3.11 Sample of MRR form	29
3.12 Sample of Bill	31
3.13 Sample of AP Journal	32
3.14 Raw & packing Materials receiving process	33
3.15 Import of Raw & packing Materials	34
3.16 Inventory Valuation	39
Chapter-4 Analysis part	41
4.1 Inventory Turnover	42
4.2 Inventory to sales ratio	43
4.3 Comparison (Beximco & Square)	44
4.4 Inventory Ratio	44
4.5 Financial Highlights-turnover	46

      4.6 Financial Highlights- Pretax profit                                                             46

4.7 Financial Highlights- net worth	47
4.8 Financial Highlights- total assets	47
Chapter-5 Conclusion	48
5.1 Concluding Remark	49
5.2 Findings	50
5.3 Recommendation	51
Chapter-6	52
6.1 References	53
6.2 Annexure-A (Questionnaire)	54
6.3  Annexure-B (Terminology Used)	56

Chapter-01 Research Methodology

Rational of the study:

This report is equipped to make a study on the preparation and presentation of Inventory Management of Beximco Pharmaceuticals Limited as a part of the fulfillment of internship program required for the completion of the BBA program  for the Department of Business Administration, Shahjalal University of Science & Technology, Sylhet.  The report was prepared under the supervision of Mohammad Mizenur Rahamann, Assistant Professor, Department of Business Administration, Shahjalal University of Science & Technology, Sylhet and Mr. Kamal Uddin Ahmed, Deputy Manager, Accounts and Finance Department of Beximco Pharmaceuticals Ltd.

Inventory consists of usable but idle resources. The resources may be of any type-men, materials, machines, etc. For example, if a company purchases a machine or appoints an expert in anticipation of the requirement of their services in future, these resources work as inventory. Generally, inventory of men or machines is not carried and managements hire machines or consult experts whenever required, as an economical alternative. When the resource involved is material or goods, it is referred is the stock or simply as “Inventory”. Inventory is the stock kept for future use to synchronize the inflow and outflow of goods in a transaction. So this report is rationalized for providing some knowledge about analysis and application of inventory system of Beximco Pharmaceuticals Ltd.

Scope of the Study:

Inventory Management of Manufacturing public limited company is a broad area. Within the time period of three months allotted for internship, it is virtually impossible to cover all aspects of Inventory Management. So, the scope of my study is limited only to the compliance of those as followed by Beximco Pharmaceutical Ltd. In preparing the report, I review and analyze the information published in the annual report for the year 2002-2007. Any change in Inventory policies in respect of providing information after this period is beyond the scope of my study.

Objective of the study:                  

A broad objective of the report is the comparative analysis of current year and previous year inventory position of Beximco Pharmaceuticals Ltd. The specific objectives those are discussed to help in explaining the broad objective are as follows:

·       to determine the overall techniques or procedures of Inventory Management System of BPL.

·       to analyze the inventory management and forecast the  policy.

·       to understand the flow of documents of each inventory in BPL.

·       to explain develop the system of Inventory Management of BPL. 

·       to recommend some action plan to increase the efficiency of BPL.

Methodology of the study:

This report has been prepared on the basis of experience, which I was gathered during the period of internship. For preparing this report, I have also got information from various employees of Beximco Pharmaceutical Limited (Planning Dept., Sales or Marketing Dept., Accounts Dept., Purchase Dept., etc), annual reports, different books especially BBA, and website of the Beximco Pharmaceutical Limited.   

The required information for this study collected in various ways. Firstly, the primary information and data’s are collected as-

o   Discussion.

o   Personal interview.

o   The observation method.

o   Literature study and

The secondary sources of the information and data’s are collected as -

o   Annual Reports.

o   Web-sites.

o   Previous Internship Reports. 

  

Data Processing and Analysis:

The both primary and secondary data’s and information’s sources have been processed and analyzed manually and qualitative approach has been used throughout the study.

Data has been analyzed by using computer program with the helps of Microsoft Access, Microsoft Word, and Microsoft Excel.

Limitations of the Study:

There were some limitations of the study, but among those some major limitations have been mentioned below-

·       The duration that is for internship is not enough to learn about a big organization like Beximco Pharmaceuticals Limited.

·       For non-availability of secondary data and for time limitation it was not possible to work on the basis of board data.

·       Due to restriction of time, I could not get detailed information about every Departments of BPL.

·       In case of preparing Inventory cycle, I faced lots of difficulties to collect the confidential data from BPL.

·       Lack of confidential information about the organization makes many mistake and targeted aim.

  

Chapter- 02 Overview on Organization

 An overview on Beximco Pharmaceuticals Limited:

Bangladesh has come a long way since its independence. It has improved key social indicators and the well being of its people. The Beximco Group of Companies has been an integral part of this progress. BEXIMCO's philosophy is simple: In identifying opportunities, it has targeted those industries which the country needs most in order to progress and to improve living standards. Beximco is also focused on those industries, which make the most of Bangladesh's competitive advantages in the international market.

As a result of this philosophy, the Beximco Group is today Bangladesh's largest private sector industrial conglomerate. In the course of its growth, it has created industrial and management capabilities that will serve the country for generations to come. BEXIMCO's industrial businesses include jute, textiles, basic chemicals and pharmaceuticals and marine foods. BEXIMCO's non-industrial undertakings technology, trading and financial services. It is the creation and expansion of businesses critical to Bangladesh's development, businesses, which are developed and run by Bangladeshis, businesses that develop technologies and practices specific to the needs of the country, which is the defining characteristic of the BEXIMCO story.

Finally, Beximco Pharmaceuticals Ltd. (BPL) is one of the leading edge pharmaceutical companies and is a member of the BEXIMCO Group, the largest private sector industrial conglomerate in Bangladesh. The strategic strengths of Beximco Pharmaceuticals are its strong brand recognition, highly skilled work force and diversified business mix.

History:

Beximco Pharmaceuticals Ltd is the leading pharmaceutical manufacturer in the country. It is a member of the Beximco Group. It all began in 1980 when BPL's first product made under license of Bayer AG, Germany rolled out of a small manufacturing plant in Tongi, Dhaka. Products made under license of Upjohn Incorporated, USA followed. After its initial years of struggle it broke ground with the launching of its own products in 1983. The journey continued and barrier after barrier were crossed, challenges were faced and transformed BPL into what it is at present. Today, BPL holds a 10% share in the domestic market after competing with such Multinational Giants as Glaxo, Welcome, Novartis, Hoecsht, Rhone Poulenc Rorer, and Fisons etc.

BPL manufactures and markets a high quality and cost-effective range of about 80 formulations covering all major therapeutic groups. The commissioning of BPL's Basic Chemicals Unit in 1990, established a very significant milestone in the history of the country's chemical industry. It not only met 90% of the country's demand for two vital raw materials, ampicillin and amoxycillin but also started selling these to overseas markets, including South Korea and Malysia. The recipient of three times `gold' national export trophy, Beximco Pharma is the largest exporter of pharmaceuticals from Bangladesh, spreading its presence in many developing and developed countries across the globe. Beximco Pharma is the only company in Bangladesh to receive this highest national accolade for export, for record three times.

Mission of organization:

Each of Beximco Pharmaceuticals Ltd activities must benefit and add value to the common wealth of their society. They firmly believe that, in the final analysis are accountable to each of the constituents with whom they interact, namely: their employees, customers, business associates, fellow citizens and our shareholders.

Vision of organization:

BPL has transformed its activities, culture, style and philosophy to meet the demands of the new millennium. Business diversifications that are strategically important for sustained growth are results of its vision of the future. A multi-million dollar pharmaceutical formulation plant which will be fully up to the USFDA standard is being built. On completion, this plant would be one of the most modern plants in this region. Several new bulk drug facilities are being developed to backward integrate their high volume products. BPL's commitment to its customers is to always offer them the best both in product quality and services.

  

Management of the Company

The management of BEXIMCO PHARMA is simply exceptional in comparison to any other listed companies in this country. It has a blend of professionalism and wisdom, which plays a key role in managing the champion organization.

                                        The Board of Directors:

A S F Rahman Salman F Rahman Iqbal Ahmed Mohammad Abul Qasem Osman Kaisar Chowdhury Dr. Abdul Alim Khan Abu Bakar Siddiqur Rahman Dr. Farida Huq Chowdhury Hafizur Rahman Barrister Faheemul Huq Ahsanul Karim Md. Asad Ullah

Chairman Vice Chairman Director Director Director Director Director Director Director Director Director Company Secretary

A dedicated Management committee and an Executive Committee make sure that BEXIMCO PHARMA achieves its target with sheer professionalism. The committees are:

                  The Executive Committee:

Osman Kaisar Chowdhury Chowdhury Hafizur Rahman Nazmul Hassan Ali Nawaz Afsar Uddin Ahmed

Member of Board of Directors Member of Board of Directors CEO Chief Financial Officer Director, Commercial

        

            The Management Committee:

Nazmul Hassan Osman Kaisar Chowdhury Ali Nawaz Rabbur Reza Lutfur Rahman Afsar Uddin Ahmed Zakaria Seraj Chowdhury Mohd. Tahir Siddique A R M Zahidur Rahman Jamal Ahmed Choudhury

CEO Member of Board & Executive Committee Member of Executive Committee Director, Marketing Director, Works Member of Executive Committee Director, Sales General Manager, Quality Assurance General Manager, Production Senior Manager, Accounts & Finance

Corporate Governance in Beximco Pharma:

In BPL they always nurture and support good corporate governance. Board of BPL places greatest emphasis on maintaining the highest standard of corporate governance. As trustee of all the stakeholders of the company, the board is fully aware of its responsibilities and therefore, endeavors to safeguard the interest of all concerned. The statement below describes how the principles of good governance are applied in BPL -

Size, Composition and functioning of the Board:

The board of directors is the highest level of authority in the organization structure of BPL. The board is responsible for the overall direction and is ultimately accountable to the shareholders for the activities, strategies and performance of the company. Currently, the board of directors of BPL comprises of 11 members with Mr. A S F Rahman as Chairman and Mr. Salman. F. Rahman as Vice Chairman. The major concern of the board is to ensure that the overall activities of the business are conducted responsibly and with focus on long – term value creation. The board meets periodically to transact matters placed before them that require board’s approval and/or direction. Board reviews the overall activities of the business and where necessary, strategic guidelines are given for onward implementation.

Executive Committee:

Next to the board, there is a four-member Executive Committee for closer monitoring of business performance and to provide operational guidance. The scope of work of the committee includes but not limited to, review of business performance, approval of budget, evaluation of capital expenditure proposals and if appropriate recommendation for approval to the board, appraisal of senior level managers etc., The review, evaluation and recommendations of the Executive Committee provide significant input to enable the board to take the well-informed decisions.

Chronology of progress:

1976	Registration of the company.
1980	Started manufacturing and marketing of licensee products of Bayer AG of Germany and Upjohn Inc. of USA.
1983	Launching of Beximco Pharma’s own brands.
1985	Listing in the Dhaka Stock Exchange (DSE) as a Public Limited Company (PLC).
1990	Commissioning of Basic Chemical (APIs) unit.
1992	Started export operation with Active Pharmaceutical Ingredients (APIs).
1993	First export market operation with finished formulations.
1994 to 1995	Achievement of National Export Trophy (Gold) as the first pharmaceutical company of the country.
1996	Introduction of Sustained Release Dosage form.

1997	Introduction of Suppository Dosage form; Commissioning of Metered Dose Inhaler (MDI) plant; Introduction of Metered Dose Nasal Spray.
1998	First pharmaceutical company of the country achieving 'National Export Trophy (Gold)' for 1994-95.
1999	UNICEF approval of Beximco Pharma as an enlisted supplier.
2000	Agreement to manufacture Metered Dose Inhaler (MDI) for GlaxoSmithKline.
2001	Introduction of Small Volume Parenteral (SVP) products; establishment of Analgesic-Antiinflammatory bulk drug plant.
2002	Won the first prize of ICAB National Awards 2000 for 'Best Published Accounts and Reports' in Non-Financial Sector Category. The first Bangladeshi company to supply pharmaceuticals to Raffles Hospital- the most prestigious hospital in Singapore.
2003	Received “National Export Trophy (Gold)” for consecutive 2 years (1998-99, 1999-2000). Won the Silver prize of ICAB National Awards 2003 for 'Best Published Accounts and Reports' in Non-Financial Sector Category. Won a tender to supply Neoceptin R and Neofloxin to Raffles. Hospital of Singapore for the whole year's consumption. Introduced Anti-HIV drugs for the first time in Bangladesh. Diversification into Anti-Cancer therapeutic class.
2004	Signed contract with Novartis to manufacture their liquid, cream, ointment and suppository products under “Toll Manufacturing” agreement
2005	Merger of Beximco Infusions Ltd. with BPL. Admission to Alternative Investment Market of London Stock Exchange (LSE)

  Company Profile:

Corporate Headquarters	17 Dhanmondi R/A,Road No.2  Dhaka 1205, Bangladesh  Phones: 880-2-868220, 861891 Fax: 880-2-863470, 867647
Operational Headquarters	19 Dhanmondi R/A,Road No.7 Dhaka 1205, Bangladesh Phones: 880-2-869151(to 5) Fax: 880-2-863888, 863470
Factory	Cherag Ali Market, Auspara, To Tongi I/A, Gazipur.
Year of establishment	1976
Commercial Production	1980
Status	Public Limited Company
Type of business	Manufacturing and Marketing of Finished Pharmaceutical Formulations and Raw Materials
Authorized Capital in Taka	Taka 2000 million
Paid-up capital	Taka 1,040.97 million
Number of   Shareholders	Around 50,000
Stock exchange listing	Dhaka (DSE), Chittagong (CSE) and London stock Exchande.
Number of employees	2,403
Overseas Offices	Pakistan, Myanmar, Singapore, UK, USA, Yemen, Kenya, Nepal, Vietnam, Sri Lanka and India.

Organizational Structure of BPL:

From the very beginning, Beximco Pharma believes in one paradigm- 'a business is judged in the market based on two basic components- its products and people. The company considers the most valuable asset it has, are the people who work for the company for its 'successes' built to last. This people focused culture, indeed, makes Beximco Pharma unique compared to others.

So it makes sense for the management of the company to do everything possible to ensure that every member of stuff enjoys the friendly and welcoming atmosphere in the company that encourages the employees to be themselves. Here, the workplace has evolved to be a very close community of co-workers where employees take pride in their job, their team, and their company. They celebrate the successes of their peers and cooperate with others throughout the organization. Here, communication is open and accessible, hiring and rewarding are impartial and decisions are taken together with the employees in a free and fair process. Here, everyone is treated and cared for as an individual with personal life and respected of their professional life by encouraging and supporting professional development. Today, Beximco Pharma is not just a great workplace but is a great way of life. It has made itself a great company to work with where the company and its people 'grow together'

Training & Development:

One of the driving forces of Beximco Pharma is its highly skilled human resources. BPL is continuously striving to explore the core competencies of the employees to face the challenges of the competitive environment. Continuous learning had been enforced as a motivation tool to upgrade current level of knowledge and skills of the employees. BPL also ensures an atmosphere that offers a better learning ground for its employees and believes in upgrading its personnel through continuous education program.

BPL, extended and enhanced in-house & external training programs are being conducted round the year. During 2003, BPL employees participated in various training programs that include -

·       Company formation, regulatory compliance and company meeting.

·       Industrial control and macaronis.

·       Continuous improvement and changing behavior.

·       10 Commandments of GMP.

·       Presentation skills.

·       General guidelines of SOP.

·       Sanitation, hygiene and environment control.

·       Maintenance of equipments, calibration and validation.

·       Fire prevention and safety.

·       Industrial automation.

·       Coating technology.

·       Technology transfer.

Title of the training:

• Managerial style.
• Personal values questionnaire.
• Learning style inventory.
• Learning skills profile.
• Management workshop for women executive.
• Sales management.
• Training on GMP, Process validation, SOPs and documentation.
• Audio visual training on GMP for MDI plant.
• Total Quality Management (TQM).
• Integrated material management.
• Occupational health & safety.
• Course leader’s courses and etc.
• Personnel for the training programs.

Research & Development:

BPL’s R & D team is committed to the development and introduction of novel drugs and drug delivery systems that make BPL a front-runner in the nation’s pharmaceutical industry. The R & D team comprises of highly qualified and trained technical personnel continuously striving for product and process innovation and up gradation.

The sincere and relentless effort of the R & D team has taken the company a step further through introduction of high tech Anti-AIDS and Anti-Cancer products in 2003. A good number of APIs are also in the development pipeline to ensure availability of raw materials in the post-WTO era. With its continuous investment in R & D and cutting-edge technology, BPL is moving forward to meet tomorrow’s healthcare needs.

Fine Chemicals:

BPL’s pioneering move to diversify business into manufacture of Active Pharmaceuticals Ingredients (APIs) in 1990 set a new milestone for the pharmaceutical industry of Bangladesh. Besides exporting to the countries of the Asian market such as Vietnam, Malaysia, Taiwan etc., BPL’s world class APIs were also exported to countries of European market like Germany. APIs like Celecoxib, Rofecoxib, Ciprofloxacin, Ranitidine, Amlodipine, Fluconazole, Cephalexin, Diclofenac Sodium and Cetirizine, having good sales potentials have enriched our portfolio in the recent years. A number of other high-value high-margin products are in the R & D pipeline. With the mandatory patent protection in developed and developing countries coming into effect after 2005, a capacity build-up in the backward linkage bulk drug manufacturing facility would be an added advantage for BPL in the post WTO era.

Blockbuster Products:

Success of a pharmaceutical company depends on how effectively it establishes its brands in the market. The excellent blending of world class manufacturing technology and innovative marketing strategies made BPL successful in achieving brand equity for its products. As a result the number one product by value and the number one product by unit in Bangladesh Pharmaceutical Market and also the highest selling drug in the cardiovascular class belong to BPL. Some products are-

·     Neoceptin R –One of the major revenue earning products BPL is Neoceptin R. It is also the highest selling product by value and is the undisputed leader in Bangladesh Pharmaceutical Market.

·     Napa –Napa is the highest selling product by unit. Napa becomes a household brand in the mind of physicians as well as consumers of Bangladesh.

·     Amdocal –Amdocal is one of the most prestigious and revenue earning products of BPL. It is the highest selling product in the cardiovascular market.

Quality:

Quality is their relentless passion, ingrained in their values and in all what they do. Beximco Pharma is committed to cater to the growing health care needs of the nation. This commitment demands enormous social responsibility of ensuring quality medicines of the highest purity, proper stability, excellent safety and superb efficacy. At every stage of production, stringent control mechanism involving raw material testing, in-process quality control, packaging, labeling, finished product testing as well as stability monitoring and documentation is maintained. Standard Operating Procedures (SOPs) developed according to the cGMP guidelines of WHO are being strictly followed in every step to ensure full compliance. BPL QC lab is equipped with the most modern and sophisticated equipment like Atomic Absorption

Spectrophotometer (AAS), Nuclear Magnetic Resonance (NMR) Spectrophotometer, High Performance Liquid Chromatography (HPLC), Gas Chromatography (GC), Infrared (IR) Spectrophotometer, Ultraviolet (UV) Spectrophotometer, Homogenizer, In-vitro Bioavailabilty Tester, Lung Simulator, Disintegrator, Dissolution Tester, & many other computer-aided quality control instruments. Thus BPL succeeded in gaining trust and confidence of the doctors and patients all over the country.

           

Technology:

Technology carries the promise of tomorrow. The benefits of technology belong to all of us -benefits that create new opportunities and open doors to a better life. For example, the new inhaler plant of BPL has been designed in a way to ensure highest-possible quality at every stage of manufacturing and quality control. World-class facilities are being employed in each and every step including mixing, filling, testing, labelling, batch printing and other procedures to ensure manufacturing of world class products.

Responsibility & Happiness:

Medicine is directly related to human life and therefore, its manufacturers have enormous social responsibility of providing safe and effective medication, demanding uncompromising efforts at all levels of its activities. Beximco Pharmaceuticals Ltd. - the leading health care company in Bangladesh, has been making every effort to ensure the effectiveness and safety of the medicines that it produces. Physicians and patients of the country rely on the efficacy of the medicines of Beximco Pharma at the time of critical needs demonstrating their confidence and trust on BPL products. BPL has a remarkable mission statement, which is being seriously pursued in its thoughts and actions. An increasing amount of contribution is ploughed back into social causes demonstrating BPL’s commitment to the nation. As they continue to grow, it should not only benefit BPL itself, but it should also positively contribute to the nation and society where they live.

In BPL, they believe that they manufacture and sell medicines to provide health, happiness and smile back in life of the fellow citizens. They intend to help realize the ultimate aspiration of the nation for a lifetime of good health. Ensuring a healthier tomorrow for the people is their responsibility.

Largest Pharmaceutical Exporter:

Beximco Pharmaceuticals Ltd. (BPL) is the largest pharmaceutical exporter of Bangladesh. BPL was the first pharmaceutical company in Bangladesh to receive ‘National Export Trophy (Gold)’ in 1994-1995, which was the very first year for introduction of such award by the Govt. of Bangladesh. Beximco Pharma has also been awarded ‘National Export Trophy (Gold)’ recently for two consecutive years 1998-1999 and 1999-2000. It is the only company to be the record 3 times winner of such award for its outstanding export performance. It is worth mentioning that this award is the highest national recognition for excellence in export.

Beximco had always been highly proactive in exporting pharmaceuticals from Bangladesh and was the pioneer in almost all export activities of the country, such as -

·       Pioneer in entering the CIS countries.

·       First pharmaceutical company of Bangladesh to enter Singapore- one of the most stringent and regulated markets in Asia.

·       First & only Bangladeshi company to supply pharmaceuticals to Raffles Hospital – one of the most prestigious hospitals of the region.

·       Only company to supply specialized & high-tech products like Inhalers, Suppositories and Nasal Sprays to overseas markets.

·       Pioneer in entering African market.

As an LDC, Bangladesh has been exempted from pharmaceutical patent protection up to 2016, which has opened the door to ‘Enormous Export

Opportunities’ for Bangladesh pharmaceutical sector. They strongly believe, Beximco Pharma with its highly sophisticated machinery & equipment, human resources, process validation, documentation, expertise in international marketing etc. is well poised to take maximum advantage of this export opportunity.

  

Chapter-03 Background of the study

Inventory Management:

An inventory system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked. The system is responsible for ordering and receipt of goods: timing the order placement and keeping track of what has been ordered, how much, and from whom.

Inventory management system has two main concerns. One relates to the level of customer service, and at the right goods, in sufficient quantities, in the right place, and at the right time. The other relates to the cost of ordering and carrying inventories. As a hundred percent export oriented manufacturing company, Beximco pharmaceuticals limited places a great importance in valuation and management of inventories.

Inventory is the stock of any item or resource used in an organization. An inventory system is the set of policies and control that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.

As such, there is a broad and deep volume of literature in the management of this asset in various situations the interaction of this asset with other asset and similar issue. A complete and comprehensive discussion of the issues in inventory management is beyond the scope of this report. I limit my coverage to only the most basic inventory.

Objective of Inventory Management:

The objective of inventory management is to achieve required levels of production while keeping inventory costs within reasonable bounds. The basic objectives are as follows:    

Primary Objective:

The primary objective of this report is to fulfill the requirement of BBA program. This contains five credit hours for internship and to apply the theoretical knowledge gained from the coursework of the BBA program in a specific field.

Secondary Objective:

• To understand the flow of documents of each inventory in BPL.
• To know about the procedures inventory Management System.
• To analyze the inventory management and forecast the future    policy.
• To maintain the balance between opening and closing stock inventory.
• To observe the working environment in the corporate sector.
• To have practical exposure in corporate environment that helps a lot to understand the future courses.

Inventory Management why Important:

Like all other assets, inventory represents a costly investment to the firm. In order for this investment to be worthwhile there must be some advantage in making it. Those reasons vary with the type of inventory carried. For purpose of discussion I will use the accountant’s convention of dividing inventory into three types:-

Raw Material Inventory:

§  Having an available stock of raw materials inventory make production schedule easier.

§  To keep raw materials inventory is to avoid price changes.

§  Keep extra raw materials inventory to hedge against supply shortages.

Work-In-Process Inventory:

·       Keep work-in-process inventory beyond minimum level to Buffer production.

Finished goods Inventory:

·       Keep finished goods inventory to provide immediate service.

·       Keep finished goods inventory to Stabilize production.

Purposes of Inventory:

The firms keep a supply of inventory for the following reasons are:

·       To maintain independence of operations.

·       To meet variation in product demand.

·       To allow flexibility in production scheduling.

·       To provide a safeguard for variation in raw material delivery time.

·       To take advantage of economic purchase-order size.

Key Functions:

The key functions of the Beximco Pharmaceuticals Limited or BPL inventory management systems are like-

·       To ensure material is available.

·       Receipts, custody, and issue of materials.

·       To recording the record of all stock movements.

·       Co-ordinate with management, maintenance, production, marketing & finance departments and other departments in the company for meeting their requirements for materials and spares.

·       Assist in devising management reports.

 Types of Inventory:

There are various types of inventory. Some of them are given below, Such as: - 

·       Finished Goods.

·       Work in Process.

·       Packing Materials.

·       Laboratory & Promotional Materials.

·       Physician Sample.

·       Raw & Packing Materials in Transit.

·       Stock of Stationery.

·       Spares & accessories.

 Raw Materials:

The raw-materials inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing (Production) process. They are important input of the final product.

Work-in-Process:

The Work-in-Process inventory consists of items currently being used in the production process. They are normally partially or semi-finished goods that are at various stages of production of multi-stage production process.

Finished Goods:

Finished goods represent final or completed products, which are available for sale. The inventory of such goods consists of items that have been produced but are yet to be sold.

Packing Materials:

The packing materials inventory contains of material packing related goods, which things are used for the purpose of packing materials. Mainly packing materials used for the purpose of cover the final products or to give it an attractive look.

Laboratory & Promotional Materials:

Laboratory and promotional material refers that which goods or materials are used for the purpose of laboratory and promotional activities. Usually this type of material used inside of the organization.

Physician Sample:

This type of product or materials generally made or collects for the physicians. Because new products always need to physician approved, for that reasons this type of materials are required.

Figure: Inventory Cycle

Sources of Raw & Packing Materials:     

Sources of Raw and Packing Materials are classified into two categories:-

·       Local Purchase.

·       Import Purchase.

Local Purchase:

When any specific material need for production then purchase department purchase the material from locally. For local purchase, department seek for appropriate seller. In local purchase few condition are considered such as-

·       Quality of the Material.

·       Rate of the Material.

·       Lead time.

·       Previous record of the supplier and etc

The Processes of Local Purchase

The processes or procedures of the local purchase are given below, like-

·       Processing Purchase Order.

·       Receiving Material, Goods and Services.

·       Factory sends MRR (Material Receiving Report).

·       Supplier Bill Submit.

·       Voucher Entry.

Raw and Packing materials from local purchase processes are discuss below and also shows the data or information recording diagrams of different processes-

Processing Purchase Order:

The procedure begins with need recognition. The respective department identifies its need, gets      approval of the departmental head and with the approval an authorized person sends purchase requisition to purchase department to initiate purchase. In case of property, plant and equipment acquisition, before sending purchase requisition, a budget has to be prepared by the user department. If the departmental head or higher authorities, whichever is required, approve the proposed budget a purchase requisition is sent to purchase department, and in case of raw or packing materials, the planning department determines the quantity and timing of raw materials. This department informs the purchase department when to buy materials.

When purchase department got the requisition, it calls for quotation or tender. After receiving the quotation or tender, supplier has been selected. The supplier may be local or international. If the terms and conditions are in favor of both BPL and the selected supplier, an order for the purchase is than issued by the purchase department. In case of raw or packing material, the purchase order is issued by the factory. A purchase register is maintained by the purchase department in which they maintain all the information relating to a consignment.

Figure 01: Sample of Purchase Order or PTG form: 

 Receiving Material, Goods and Services -

Generally the goods and services are received by the user department who has issued the purchase requisition or in some cases by the authorized department. Materials are received by Quality Assurance Department (QAD) in the factory. After receiving materials, goods and services an MRR is issued for materials and other than material a GRR is issued by receiving department to purchase department. In the mean time the invoice or bill is received by the purchase department.

Before using the products by user department that is at the time of delivery, it has been inspected by the inspection or QAD, by user department or by authorized department. QAD examined the materials on a sample testing basis and provide a certificate. Generally-

·       QAD inspects standardized items like raw material, packing material etc.

·       User department inspects non standardized items like services, stationeries etc.

·       Inspection department inspects machineries, plants etc.

Again at BPL there are some authorized departments for inspection. For example, computer or IT related products are inspected by IT department, furniture are by HR department. If the received goods, materials and services are not according to purchase requisition BPL may-

·       Refuse the order.

·       Recorder the item.

·       Received on condition.

Factory sends MRR (Material Receiving Report:

After receiving material factory send MRR to accounts department for reconciliation. In this MRR amount of quantity, receiving date, amount to use quality testing are mention. Respective department entry this MRR in excel sheet for reconciliation.

Figure 02: Sample of MRR Form:

Beximco Chemical Division Tongi Industrial Area, Gazipur.                                                                                      MRR no………………... Material Receiving Report                                                                                              Date……………………

Name of the material: -                                                                                                  Lot/Batch no…………….

Manufacturer/Supplier: -

P.O. No. PTG-

Date-

Invoice no.

Date-

Carrier-

L/C no.

Date-

Consignment no.

Local-

I.D Code

Description

Total no. of container

Unit

Qty. before QC test

Excess/ Storage

Qty. after QC test

Remark

Ordered

Received

Broken/ Damage

Released

Reject

Received By -

Provisional                         Final Date                                 Authorized Date Entry -                      Entry-

Quality Assurance

Unit

Quantity

Done By

Date

Remark

Approved By

Supplier Bill Submit:

In this mean time of sending MRR supplier submit their bills in to purchase department. They approver the figure and send this bill to accounts department. Then accounts department check the approve amount, rate from purchase order, amount from MRR. If any discrepancy identify at this stage then it’s reported to purchase department.

Bill (Copier, Fax, Printer, and Computer Sales, Service and Repair Center) Office: - 110, North Muda Para (3rd Floor), Dhaka. Tel: 7274897.  Mobile: 01712220814, 01712925354. Date: ……………. Name: -.............................................................................................................. Address: - ……………………………………………………………………. S.L Description Qty. Rate Price Total tk = Total Taka (In Word): Customer Signature                                                                                                Authorized Signature (N.B Goods once sold can not be taken back)

Figure 03: Sample of Bill:

Voucher Entry -

                              After checking purchase order and MRR, respective person entry this information in to journal vouchers. Where supplier name, description of product, approve amount are mentioned. Every journal voucher stapling with photocopy of bill and original bill. Then these journal vouchers approve with proper authority and main bill send for payment.

Figure 02: Sample of AP Journal Voucher:

Beximco Pharma                    AP Journal Voucher                          Date: …….. Voucher No    : ……..                  Original Voucher No: ……..                    0/00/00 Vendor No                              : ……… Invoice / Bill   : ………    Date: ………        MRR/QC/WO : …….       0/00/00 Due Date         : ……… Description     : ……… Payable           :     ………..                Amount   Cr. Vat                  :     ………..                Amount   Dr Commission   :     ………..                Amount   Dr                Total (Tk) : Item Description Account no Amount (Tk) Dr./Cr Signature Date Notes Prepared by Checked by Approved by Posted by

 Necessary Documents for Payment of Bill -

      There have some necessary documents that is mandatory for   payments and its supply correctly by supplier-

·       Original Bill

·       Photocopy of bill (Copy not negotiable)

·       Vat Challan

Raw & Packing Materials Receiving Process

Import Purchase of Raw & Packing Materials:

Another source of raw and packing material is importing. For import any raw and packing respective department must open a letter of credit at bank. It is ensure the liquidity of foreign supplier. Purchase department maintain a PC file against a Letter of Credit. It contains all necessary documents among the raw/packing material and shipment. Contains of PC file described as follows: - (Contents of a PC (Pharmaceutical Consignment) File: -

Insurance Company:

Purchase department opens Letter of Credit or LC as a starting of raw and packing material import. As a part of this process, purchase department also makes insurance in any insurance company. The insurance company sends insurance bill to purchase department and after approval purchase department sends it to accounts section. From the bill an excel sheet is prepared by taking the relevant figures. Specimen of an excel sheet is produced below:

Particular	Total	VAT	Tk. Exclusive VAT	Rebate 80% of VAT	L/C in Transit	Party
PC Number	-	-	-	-	-	-

                       

For every LC, a PC file is made containing all the relevant documents relating to that LC. A distinct number is assigned for each PC file to distinguish it front others. An important point to be remembered is that total amount payable to the insurance company is not included in the cost of raw material. To determine the cost of raw material imported, only 20% of VAT is included as per VAT act and the company gets rebate of VAT equal to 80% of VAT. The following journal entry for recording goods in transit is given in MAPICS:

Particulars	Debit	Credit
L/C in Transit	*****
VAT Rebate	*****
Accounts Payable		*****

When goods are received by factory and MRR is received by account section. The amount debited to LC in transit is transferred to cost of inventory. The journal entry given is -     

Particulars	Debit	Credit
Inventory	*****
L/C Transit		*****

C & F Bills:

This bill consists of various type of bills or expenses. Some of those expenses are like:-

·       Miscellaneous Expense

·       Transport

·       Freight Forward Charge

·       Bank Charge

·       Jetty Examination

·       Agency Commission

Shed Bills:

In every PC file shed bill is included. Shed bill authority may be changed depend on the way of route for materials (Land, Air, Sea) so shed bill will charge the respective authority.

                  In shed bill there have three types of charged may be imposed-

·       VAT (Value Added Tax)

·       Damages

·       Entry Fee

Invoice of Supplier:

In every PC file there have few number of invoice is included. In this invoice, the respective company mentions there product details, quantity, rate. This information is very important for every step of production. Because when we measure a specific product then we easily find the rate, quantity, and product specification.

Packing List:

In every PC file packing list is included. In the packing list respective company mention there forwarded packing list for materials receiving company. Then company can sure about the delivery packing list.

Country of Origin:

Supplier ensures the country of origin to the respective buyer issuing certificate for origin. Supplier send to buyer and its also enclosed with PC file.

Weight and Measurement List:

A copy of weight and measurement list enclosed with every PC file. It ensure about weight and measurement for buyer concern. Any claim against weight & measurement is valid with the reference of weight and measurement list.

Certificate of Analysis:

A copy certificate of analysis is enclosed with the PC file. It is guarantee that the specific raw or packing material is good in condition

Bill of Entry:

Bill of entry is a document that supply by custom authority. In every PC files there have a bill of entry. The following figure is mention in bill of entry.

Calculation of Duty & Taxes:

Assessable Value:

Particulars/Description	Amount
Value of Raw Material (Invoice Value at US$ Exchange Rate) Add: Insurance @ 1% + Landed Cost @ 1%	**** **
Item Assessable Value (AV)	*****

Duty	Base	Rate	Tax
Custom Duty (CD)	Assessable Value (AV)		***
Supplementary Duty (SD)	AV + CD		***
Value Added Tax (VAT)	AV + CD + SD	15%	***
Advance Income Tax (AIT)	Assessable Value (AV)	3%	***
Total Item Tax			****

Assessment Notice:

Particulars/Description	Amount of Tax
Total Item Tax (From Bill of Entry)
Add: Document Processing Fee (DF) VAT on C & F Commission Income Tax on C & F Commission	*** *** ***
Total Global Tax	*****

Total global tax paid by C & F agent in cash to custom authority to release the goods and includes the amount thus paid in C & F bill.

C & F Bill:

After releasing the goods from custom, C & F agent delivers the goods to factory and sends a bill to accounts section. This contains the following information are:

·       Documentation.

·       Custom Duty & Taxes.

·       Super Urgent Delivery Express.

·       Wharf-rent & Removal.

·       Labor Wages for Loading and Unloading.

·       Transport.

·       Miscellaneous Expense.

·       Audit.

·       Agent Commission.

Final Cost Sheet of L/C:

After inputting all information in to the software then a final cost sheet is prepared for costing like-

Particulars / Descriptions	Amount
L/C Margin	****
Opening Charge	****
Amount Retired	****
Duty & Taxes	****
C&F Commission	****
Insurance Premium	****
Misc. Expense	****
Total Cost of Raw Material	*****

Inventory Valuations:

Inventories are valued at lower of cost and net realizable value in accordance with IAS 2 “Inventories”. The net realizable value of inventories is based on the estimated selling price less any further costs expected to be incurred to make the sale.

Goals:

      The goals of inventory valuations are much. Some of them are given below, like-

·       Cost of goods sold (COGS) is very important factor in pricing. Also for accounting purpose in the profit and loss account COGS is used to find out the gross profit. So inventory is evaluated to calculate the COGS.

·       Inventory is an item of current asset. So to find out the current asset position inventory is important.

·       To compare cost variance between time periods inventory evaluation gets importance.

       Valuation of Raw Materials in the Store:

         Cost included for the local raw materials purchased are:-

·       Procurement Cost.

·       Transportation Cost

·       Bank Charge

   Cost included for the Imported raw materials are:-

·       Procurement Cost

·       Bank Charge for Opening L/C

·       Insurance

·       Clearing from the Port and

·       Transportation Cost.