This document provides a step-by-step guide for physical inventories that allows us to verify the existence and ownership of inventories. 

FRA ensures that plant physical inventory procedure is updated every year, that physical count coverage complies with group rules and that auditors can supervise physical inventory organized during Q4

Physical inventory counts objective is to check the existence and ownership of inventories.

This procedure applies to all companies included in the consolidation under full integration. It is recommendation for "joint operation", joint venture and where Syensqo is considered as "associate" and to all warehouses within and out of production sites.

For each new acquisitions the integration management office will determine when that procedure becomes compulsory.

The procedure deals with the inventory count of all materials from a site where the inventory is taking place.

The procedure deals with the inventory count associated with BFC heading STOT-A300 inventories.

The procedure is effective from the publication date

Annual inventory planning

Annually, at the start of Q1, the Physical Inventory Manager (PIM) defines the physical inventory count program for the year for raw materials, semi-finished goods, finished goods. For plants which follow cycle counts, the plan includes a stratification/ classification following the Cycle Count policy. The data used for the analysis is based on SAP G/L detail for the prior year-end and forward-looking material resource projections.  It is then reviewed and approved by the GBU Finance Responsible Assigned (FRA).  For Cycle Counts: The plan outlines the stratification classification & count requirements for each following the guidelines stated in the Cycle Count policy. The FRA reviews the count plan which is then transferred/uploaded to the Company's database to feed with the ERP to enable cycle count execution. A reconciliation is performed by PIM and reviewed by FRA to confirm the count plan has been posted in the appropriate AODOCS document repository.

Independent of the methodologies applicable for the physical inventory count, it is mandatory that each individual item is counted at least once a year, and the count is registered in the ERP and documented in the memorandum of inventory.

Any inventory location is under the responsibility of a Physical Inventory Manager (role) and supervised by Finance Responsible Assigned (role)

==> Responsibilities can be adapted for each plant according to the segregation of duties, but any modification should be written in a procedure

To accomplish the segregation of duties, it is mandatory to not overlap the roles of each actor of the process into the tasks.

- Physical inventory count – Performed by PIM and/or correspondents team members.

It is the execution of the counting program, by the cycle count, or monthly / quarterly count or yet the stock physical annual full count, in accordance with the planning program, as defined in local procedure 

In this process, prior to the physical count, the PIM generates in SAP the inventory documents considering the physical count to happen and prints the sheets with the materials and storage locations, to support the counting. These sheets may be manually filled, with the volumes found in each location, for each material number and batch (if applicable).
Later, the PIM will use this information to input on SAP the counting for each item into the inventory document. After saving the document, another transaction on SAP will show a list of differences between the physical and the SAP.

If any difference is questionable, a physical recount can be performed, to ensure no mistake has happened.

Once the differences are considered appropriate, they can be approved by the FRA in SAP, in a specific transaction, which generates a financial posting. To ensure the segregation of duties, the access and role of differences approval must be due to the FRA only, or higher level in hierarchy in case of unavailability, medical leave, annual leave, etc.

- Memorandum of inventory – Performed by PIM and/or correspondents team members.

It is the document that details how, when, who and what materials and storage locations are being physically counted. Need to mention the methodology used for the counting and keep attached the digitalized version of counting sheets fulfilled with the quantities found.

- Mail of validation from GCCO – Performed by FRA

The communication between the FRA and the GCCO explaining and obtaining the approval of the process and the differences found. Once approved, FRA must perform in SAP the posting of the inventory differences, under the appropriated transaction.

Inventory Planning & Scheduling

Physical counts or cycle counts must be conducted at least once annually for all materials. With limited exception (see exceptions section) the sites that perform a Full Periodic (Wall-to-wall) inventory must complete them between July and November each year^[1].  Cycle counts may be performed in addition to the annual Full Periodic counts.. 

FRA validates and publishes updated physical inventory planning prepared by PIM and considering that:

• Recommended 90% of the physical inventory count (in value of items) be done by the end of September
• 100% of the physical inventory count (in value of items) must be done by the end of November, including all external storage (Hard Closing)

Exceptions:

• The period can be extended/ modified if requested by the external Audit team.  The need for date modification must be approved by the Group Controller.
• Furthermore, for the sites that perform Cycle counting they must;
  • By November 30th, references counted must represent at least 80% of the total value of industrial supplies inventory.

The annual planning must include a list of all the inventory storage location (on site / off site), the frequency of cycle counts, a detailed planning taking into account the above objectives

^[1] The site must maintain an auditable roll forward from the date of the inventory to the reporting period date. 

The annual planning includes :

1. A list of the inventory storage location

• On site
• Off site: inventory on consignment, held in third parties facilities or by toll manufacturers

2. Frequency of cycle counts, if applicable

• All storage locations divided by count date;
• Inventory planning has to be prepared targeting 100% of Inventory counted at the end of reference period;

3. A planning taking into account the following objectives

• Cycle Counting - A count of items representing 100% of end inventory should be done as of 30th November (in value), each
  year (including external Storage)

• Full Physical Counting - A count of items representing 100% of end inventory should be done as of 31 December (in value),
  each year (including external Storage)

Specific for Industrial Suplies

• By November 30th, references counted must represent at least 80% of the total value of industrial supplies inventory.
• The rest 20% of references of the total value must be counted by either sampling counting method every year or cycle counting method every 3 years

That planning must be communicated to FRA, who could organize/support the supervision by a third party without prior notification to PIM. 

4. Cycle Counts rules
 

• Cycle counts have to start before July 1st of each year, otherwise Full Inventory count will have to be executed at the plant;
• ABC Classification method has to be implemented for a complete cycle count model implementation for spare parts;

The site procedure has to include:

• The name of the finance responsible assigned (FRA) who is authorized to validate physical inventory discrepancies and particularities linked to the segregation of duties
  
  
• A reference to applicable safety procedure
  
  
• Triggering event to engage a second count : for each of the category of inventory (A31000, A34000, A37000), determination of a threshold for the value of discrepancies above which a second count must be performed. A 0.5 % threshold of the total amount of the inventory concerned is recommended, it will be applied as such if the site inventory procedure doesn’t specify otherwise.

• Specific scenarios in which recounts might not be required
  • Meter readings or print in continuous production environments
  • Scenarios specific to the site's activity

The physical inventory manager (PIM): 

1. Organize a preparatory meeting with the operational team to:

• Define which warehouses and products are included in the count,
• Review counting instructions,
• Define roles and responsibilities,
• Ensure availability of information systems, printers and handling equipment (fork-lift trucks, ….)

2. Notify affected parties providing adequate lead time to plan appropriately:

• Notify suppliers for the deliveries that will not be accepted during this time, if applicable
• Advise customers in advance of the shut-down period, if applicable
• Inform employees to allow them sufficient time to plan the activity

3. Prepare the storage area:

• Arrange items so that they can be easily counted

• Ensure there are no hazards in the warehouse that could be dangerous during the inventory count

• Clearly mark package quantities if necessary

• Clearly mark items that will not be counted with "DO NOT COUNT"

It requires that: 

1. No inventory movements (receptions, shipments or transfers) may be recorded in the inventory register during the physical count of the warehouse, in case of full inventory counts:

• • Everything is shipped before the physical inventory begins
  • No movement of material is made during the count process
  • No order is filled or material is received during the count process

2. Any items shipped and not picked up or receipt that come in, are segregated and labelled “do not inventory”

3. Blind counts are performed: The physical inventory is made without the knowledge of the quantity in the inventory records

• Batch number, item code, description, location, and other information necessary to perform the count are printed on the counting sheet but not the item quantity information.

4. Each count team has an assigned zone to count

• Counting team progression should be as linear as possible
• They receive count sheets and tags
• In the absence of bar-coding / scanner device, it is recommended that counting is performed by team of two persons

• One person counts the item and attaches a tag to the inventory items that were counted

• The second one records in the inventory document the actual quantity counted

5. At the end of, and during the inventory count process, the PIM and if possible the FRA walk through the warehouse and visually inspect that a count tag is attached to every inventory item to check that all inventory items have been counted and also ensure that the inventory is not counted twice

6. Exemptions for counts must be justified by cost savings, e.g. off-site locations; however, they have to be evidenced by a confirmation letter (including inventory date, list of products of the count, stock location, type of count ( meter reading,...), the name of the person in charge and his signature)

7. Cycle counts can be split by storage location or bins, in case of counts using WM Module;

• • Check that all count sheets are collected and that they are input into the system.
  • If the location have structure for such, it is OK for use of scanner guns or equivalent devices.
  • Recording of count results is made with dedicated functionalities of the inventory management system.
  • A list of inventory discrepancies calculated automatically by the inventory management system is printed.
  • The PIM identifies items that require a second count according to the rules defined in the site procedure. As far as possible, it is a different count team who performs the second count.
  • The results of the second count are recorded, and if necessary a third count can be asked. Otherwise a definitive list of inventory discrepancies is communicate to the PIM.
  • The inventory documents (count sheets when applicable and discrepancies list) are archived by the PIM.