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- Verify the existence and ownership of inventories,
- Implement and monitor continuous improvement systems and processes
Scope and effective date
This procedure applies to all Rhodia Group entities as well as to all Rhodia-controlled companies, and to all warehouses on site and off site.
The procedure deals with the inventory count of:
- 31000100 Raw material
- 31000160 Consumable supplies inventory
- 31000200 Raw material-industrial supplies
- 31000300 Raw material-packing material
- 37000100 Finished products
- 37000200 Goods for resale
- 37000400 Semi-finished products
The procedure is effective from the publication date.
Responsibilities
Finance responsible assigned (FRA)
- Determines the annual schedule in conjunction with the inventory manager and ensures schedule adherence, (§ 2a)
- Prepares a site inventory procedure, (§ 2b)
- Validates the inventory discrepancies analyzed by the inventory manager,
- Prepares and sends inventory reports.
Inventory manager or his representative (PIM)
- Participates in the preparation of the physical inventory and in the inventory counts,
- Analyses and justifies any significant discrepancies.
Inventory count team
- Performs an accurate count in accordance with the safety rules and must be familiar with the specific counting procedures.
Responsibilities can be adapted for each plant according to the segregation of duties (§ 1d), but any modification should be written in a procedure.
Segregation of duties
Segregation of duties (SOD) reduces risk of error and fraud so that no single individual can adversely affect the accuracy and integrity of the count.
Segregation is based on separation of the three following process
- Business process : Purchase/ Procurement, Shipment, Consumption in production
- Physical custody of assets process: counting, recording of movements
- Accounting process: invoice validation, adjustment resulting from inventory count
Respect for SOD rules means that:
- Personal involved in one process should not also have responsibilities in either of the other two processes.
- No one should be in a position of self validation, cumulating execution and supervision.
2. Planning and preparation
It is a good practice to prepare a check list before each count. It is possible to use a model that is in appendix 5.
Annual planning
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Responsible: Finance responsible assigned with inventory manager |
The annual planning includes:
- A list of the inventory storage location:
- On site
- Off site: inventory on consignment, held in third parties facilities or by toll manufacturers.
- Frequency of cycle counts
- A planning by type of inventories taking into account the following objectives:
- Except for industrial supplies:
- A complete count of the items included in the inventory records of each warehouse should be done for 31st December.
- A count of items representing 90% of the value of prior end inventory should be done as of 30th September, each year.
- A special timeframe is applied for industrial supplies:
- All references must be checked over a 3-year period.
- By December 31st, references counted must represent at least 80% of the total value of the industrial supplies inventory.
- Except for industrial supplies:
Site procedure
Responsible: Finance responsible assigned with inventory manager
Frequency: Annual
Controls: IAC 04.13.00.01 & IAC04.14.00
The site procedure has to include:
- The name of the Finance responsible assigned who is authorized to validate physical inventory discrepancies.
- Particularities linked to the segregation of duties (§ 1d).
- A reference to applicable safety procedure.
- 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.
- Determination of a threshold for the value of discrepancies above which the finance manager or the business controller, the plant manager and the enterprise supply chain director are informed (§ 4b),
- Specific scenarios in which no recount is required:
- Meter readings or print in continuous production environments,
- Scenarios specific to the site's activities.
Performing the physical inventory
Physical inventory preparation
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The physical inventory manager (PIM): 1. Organize |
Responsible: Finance responsible assigned with inventory manager
Reference:Inventory check-list
Together, the Finance responsible assigned and the inventory manager:
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2. Notify affected parties providing adequate lead time to plan appropriately:
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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:
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“do not inventory” 3. Blind counts are performed |
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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;
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Post inventory
Analysis and accounting treatment of inventory discrepancies
Responsible: Finance responsible assigned with inventory manager
Guidance for analysis: Appendix 3
- Inventory discrepancies above the threshold defined in the site procedure are analyzed and explained by the inventory manager who sends his analysis to the Finance responsible assigned.
- The analysis and final list of inventory count discrepancies are
- Signed off and dated by the inventory manager and the Finance responsible assigned,
- Archived as inventory supporting documentation as part of the accounts adjustments documentation.
Reports
Responsible: Finance responsible assigned with inventory manager
Controls: IAC 04.13.00.03
Example: Appendix 4
RCS support: Workbook BW – Physical inventory coverage rate (Core query)
Transaction MI24
- After each warehouse count, the Finance responsible assigned prepares an inventory report that includes:
- A physical inventory summary description (inventory type, scope, coverage rate, list of adjustment…)
- A list of the people who participated to the count
- An explanation of the most significant variances in quantity/ value (above the fixed threshold)
- A signature (hand written or by mail) of the report by all the people having responsibilities in the count (supervisors of counting team and of key-punching team, inventory manager)
- Validation by the Finance Manager or the Business Controller, the plant manager and the Enterprise Supply Chain Director when the sum of the adjustment is above a threshold defined in the procedure
- Every month, the Finance responsible assigned prepares a "cycle counts monthly recapitulative report" that includes:
- An explanation of the most significant variances in quantity/ value (above the fixed threshold)
- Validation by the Finance Manager or the Business Controller, the plant manager and the Enterprise Supply Chain Director when the sum of the adjustment is above a threshold defined in the procedure
- Every quarter, the Finance responsible assigned updates a progress report on physical inventories.
Appendices
Appendix 1: Annual planning
Appendix 2: Guidance for discrepancies analysis
Appendix 3: Reports
Appendix 4: Reminder on IAC controls
Appendix 5: Check list
Appendix 1: Annual planning
Appendix 2: Guidance for discrepancies analysis
Adjustments are analyzed in accordance with the value of the adjustment and type of item involved, in order to:
- Identify failures in the control systems so that improvements can be made,
- Reduce similar discrepancies in the future,
- Ensure that the proper adjustment was made,
- Evaluate indicators of trends or system problems for corrective action,
- Detect negligence, abuse, or theft
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- Raw materials: Compare reception in RCS with delivery notes
- Finished products: Check process orders
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- Check process orders in which the material is consumed
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- Are production declaration made at standard quantity? => If yes, it can create under or over consumption :
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- Review standard unit consumption in BOM
- Organize regular check in process orders and if necessary adjust the consumption through a process order
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- Error of declaration in a process order.
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- Improve analysis of variance on process orders (transaction ZWPP40A in RCS)
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- Check if the item is in an other warehouse or workshop
- Extract the inventory of this item/batch in all warehouses (transaction MB52 in RCS)
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- Control the use of this movement (control IAC on critical transaction)
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- Compare reception in RCS with delivery notes
Appendix 3: Reports
Progress report on the cycle counts
Appendix 4: IAC controls 2010
Check HERE for update in the section Documentation of the IAC eRoom.
Appendix 5: Check list
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