rd.020 current business baseline -...

AIMRD.020 CURRENT BUSINESS PROCESS – ORACLE INVENTORY

The National Company for Glass Industries – ZoujajOracle Applications Implementation Project – Release 12

Author: Sathyanarayana SarmaCreation Date: December 21, 2009Last Updated: December 27, 2009Document Ref: 1.0Revision: 1.0

Approvals:

Mr. Yousef Al Salman General Manager / Project Sponsor , Zoujaj

Mr. Hatem Al Fadli Group Finance Manager , Zoujaj

Mr. Zulfiaqar Ali Najeeb Project Manager, Zoujaj

Mr. Sathyanarayana Sarma Project Manager, Sierra Atlantic

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Document Control

Change Record1

Date Author Version Change Reference

21-Dec-09 Sathyanarayana Sarma

Draft 1.0 New Document created


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Draft 1.2 Draft 1.1


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Reviewers

Name Position

Anil Kumar Inventory Process Owner - ZoujajBalan Asst Group Finance Manager – Zoujaj Padmaiah Consultant – Sierra AtlanticEmilio Store SupervisorZaldy Packing & Inspection SupervisorRama Production SupervisorDanny Plant Manager , Dammam DivisionSridhar Ponna Oracle CoE, Sierra Atlantic

Distribution

Copy No. Name Location

1 Library Master Project Library2 Zoujaj Project Manager Riyadh, Saudi Arabia

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File Ref: document.doc Zoujaj / Sierra Confidential 2

ContentsDocument Control...............................................................................2

Process Listing and Process Descriptions...........................................4

Descriptive Overview for Inventory....................................................6

Process Descriptions for Inventory.....................................................8

Process Relationships for Inventory..................................................17

Annexure -1 Details of Processes – Raw Materials...........................20

Annexure -2 Details of Processes – Item Planning...........................22

Annexure -3 Details of Processes – Procedure for Raw Materials....23

Annexure -4 Details of Processes – Procedure for Spare Parts and Consumables.....................................................................................25

Annexure -5 Details of Processes – Procedure for Packing Material27

Annexure -6 Details of Processes – Procedure for Enamels and Labels.................................................................................................28

Annexure -7 Details of Processes – Procedure for Finished Goods..29

Annexure -8 Details of Processes – Procedure for Container Management......................................................................................30

Annexure - 9 Details of Processes – Procedure for Scrap Management......................................................................................32

Annexure -10 Details of Processes – Inventory Accuracy Process...33

Current Business Process Documentation........................................34Critical Requirements..................................................................34Current Benchmark Activities.....................................................34Current Bottlenecks.....................................................................34

Open and Closed Issues for this Deliverable....................................35Open Issues.................................................................................35Closed Issues...............................................................................35

Appendix 1 – Inventory Process Questionnaire................................36


Process Listing and Process Descriptions

Zoujaj has Manufacturing divisions at Riyadh and Dammam. The Manufacturing divisions at Riyadh and Dammam account for over 95% of the Material Management activities and are the major consumers of all the materials. Major Inventory Management functions relate to Material Management covering Procurement, Planning, Storage Management, Receipts, Issues, Quality Control, Scrap Management and Reporting. The following are the major activities of the Inventory Management functions at the Manufacturing Divisions at Zoujaj:

1. Planning : All major items in the respective items categories are subject to a Planning Process. The Annual procurement plan is prepared based on the Sales and Production Plan. Inventory Planning is a “Manual” process at Zoujaj and is covered under an exhaustive budgeting exercise on a yearly basis.

2. Stores Management : All items are received and stored at the Warehouses located at the respective divisions. Stores Management relates to Item Receipts, Stocking, Issues, Physical Inventory, etc.

3. Receiving and Quality Control : Items like Raw Materials, Spare Parts, Consumables, Packing Material, Labels, Enamels and Finished Goods pass through the “Quality” process before items are received by the respective manufacturing divisions into the respective Material Stockyard/ Warehouses. All Raw Materials pass through Quality Checks before materials are moved from the Receiving Dock to the Storage Yard. Moulds are checked for design & specifications before formally receiving into stores. Finished Products released from the Production Lines are subject to an “On-Line” Quality Process before moving to the Packing Section. After Quality check, the bottles (packed in trays and put onto pallets) are moved to the Finished Goods Inventory.

4. Issue of Material to Production : All issues are made against “Request for Material” forms by the respective user departments and are manually maintained and tracked in MS Excel, except for Spare Parts and Consumables at Riyadh Division which are maintained and tracked in a separate stand alone system - “Delta Inventory System”.

5. Container and Scrap Management : Empty Containers, Empty Pallets, Broken Glass / cullets, trays and Culletisation of Finished Glass products form a significant part of the Inventory Management. Proceeds from sales of empty enamels, packing containers, broken pallets, worn out trays, empty jumbo bags


(from imported soda ash supply) and worn out moulds (cast iron) are sources of Miscellaneous Revenue for Zoujaj.

6. Physical Verification : On periodic basis, the Finance Department matches all inventory reported by respective Manufacturing Divisions with the books of account and makes necessary adjustment for reconciliation. For Year-End activities, a physical count is carried out for all inventories by committees constituted by the General Manager for Physical count. The committee reports the physical count results for inventories at the year end to Finance Department. The Finance Department matches the Books of Account with Physical count for necessary reconciliation, and discrepancies, if any are adjusted / written off. The Year – End Physical Count process is covered for the following materials - Raw Material, Packing Material, Labels, Enamels, Spare Parts, Consumable, Finished Goods, and Held-Ware.

7. Reconciliation and Reporting : For materials other than “Spare Parts & Consumables” receipts and issues are reconciled with the respective documents. Any differences /shortages are treated as miscellaneous issues to the Material Loss Account. The Inventory departments at the Manufacturing divisions send their respective inventory statements at the end of every month to the Finance Department at the Head Office detailing the Opening stock, Receipts during the month, Issues to Production, handheld loss and Closing stock. This forms the basis for the Item Valuation and reporting for the all items other than Spare Parts & Consumables. For Spare Parts & Consumables, the details are extracted from the “Delta Inventory System” and used as the basis for reporting. Also all MRNs along with weighing slips are sent to the Finance Department which is used for Invoice Reconciliation and Payment.


Descriptive Overview for Inventory The following is the descriptive overview of the Inventory functions at Zoujaj:

Organization Structure

o Organization Structure of the Inventory Department

Master Files

o Item Master

Setup

o Organization Calendar

o Item Classification

o Item Codification

o Item Controls

o Unit(s) of Measurement

o Cost Types

Material Management

o Planning

o Receipts

o Issues

o Semi Finished Goods

o Held-Ware Management

o Inter Division Transfers

o Aging Analysis

o Physical Verification

Container Management

o Empty Pallets & Trays

Scrap Management

o Worn out Moulds

o Cullet & Broken Glass


Inventory Accounting

o Reconciliation of Inter Division Transfers

o Period Close Inventory Accounting

Reporting

o Daily Stock Report

o Inventory Valuation Report

o Consumption Register


Process Descriptions for Inventory Process Event Process

TitleDescription of Process Output

INV RD 1.0

Organization structure

Organization Structure of the Inventory Department

At the top level, Zoujaj operates on “Divisions” which is further blown down to departments and departments classified into sections. There are 3 Divisions at Zoujaj :

1. Head Office - Riyadh2. Manufacturing Division -1 : Riyadh3. Manufacturing Division -2 : Dammam

The Manufacturing Divisions at Riyadh and Dammam are the major consumers of materials both “Raw Material” and “Others”. The following are Storage Locations / Inventory Organizations at both the Manufacturing Divisions:

Main Storage Location Raw Material Stock Yard Finished Goods Warehouse Receiving Location Sales warehouse Intermediate Storage Location Held-Ware Location Scrap Yard (Worn Out Moulds, Empty Bags,

etc) Zoujaj stores inventory in different locations in the factory premises at both the divisions. Major Materials are tracked and accounted through separate General Ledger Material Accounts.

INV.RD.2.0

Master Files Item Master Zoujaj maintains a listing of all items in MS Excel with details of Item Specification and Code. New Items identified as part of the Production / Sales process are updated to the Item List on a “Monthly” basis. The Item Master is under the control of the respective departments who control their respective inventory, example : 1. Raw Material Inventory Master is under the

control of


Process Event Process Title

Description of Process Output

Batch and Furnace Supervisor.2. Packing Material Item Master is under control

of Packing and Inspection supervisor. 3. Spare Parts and Consumables Item master is

under control of the respective department supervisors.

4. Label and decorating material Item Master is under control of the Label and Decorating Dept supervisor.

5. Moulds under Mould supervisor.INV.RD.3.0

Setup Organization Calendar

The Accounting Calendar of ZOUJAJ starts from the 1st of January and ends on the 31st of December. The Financial Year is split into 12 periods and the Books of Accounts are closed at the end of every calendar period as soon as the transactions for the period have been recorded. Inventory transactions are recorded and maintained as per the Zoujaj Organization Calendar.

INV.RD.3.1

Setup Item Classification

Zoujaj currently maintains around 8000 different Items classified under the following broad heads :

S.No

Item Category

1 Raw Material, incl Broken Glass, etc2 Moulds (classified as Fixed Assets, but

carried in Inventory)3 Labels /Decoration Material4 Spare Parts5 Consumables 6 Packing Material 7 Finished Goods8 Scrap – Worn-out Moulds, Empty Bags, etc.

Administrative items like Printing, Stationery etc and Utility Items like Air, Water, Crude Oil, Electricity and Gas are not treated as Inventory Items and are expensed in the month of purchase and not considered for Inventory




valuation. For listing of Raw Materials refer to Annexure -1.

INV.RD.3.2

Setup Item Codification

Zoujaj follows an Item codification for only Finished Goods. The Finished Goods Item coding is in synch with the “Job Order Number related to Customer Ordered Item”. Each manufactured item is assigned a unique code. This number/ code are prefixed with the letter “Z” or “G”. “Z” is prefixed for Items manufactured at Riyadh Division and “G” is prefixed for Items manufactured at Dammam Division. For all other Inventory items (except Finished Goods, spare parts and consumables) there is no Item Codification.

INV.RD.3.4

Setup Item Controls

Zoujaj has the following Item Controls :1. Expiry Control – Items that have expiry

control are also used in the Manufacturing process. Example – Organic Enamel. As the items are used in critical process they are discarded once the item(s) cross the specified expiry period. Items that have warranty are identified separately. Either the user department informs about the expiry of the warranty period or the Inventory department informs the User department. Example: Organic Enamels have an expiry period month of 3 months from the manufacture Date.

2. Locator Control – All the items are stored in a specific locator in the storage locations. But the locators are not restricted to that particular item. Example Major Raw material like Sand, Limestone, Soda Ash, Feldspar etc are stored in the “Roofed Open” Stock Yard with wall divisions. Minor ingredient raw material mixtures like coke, selenium are




kept in another roofed stock yard in packaged bags in pallets, close to the Batch House.

3. Item Description: Item specification/ description are maintained for all the Items at the time of adding the Item to the Item Master (maintained in MS Excel). If the description requires a change, it will be changed accordingly. But this happens very rarely in Zoujaj.

4. Unit of Measurement (UOM): The UOM’s in use by Zoujaj are Metric Tones, Kg, Grams, Meters, Quantity (Each, No, Gross, set, etc), KWH, MMBTU (British Terminal Unit), Pallet and Liters. Multiple units of measurement are also used for Items – Example Bottles (Quantity) converted to No of Pallets or as Metric Tonnes.

5. Transaction Approvals: Any transaction that needs to be done should be approved by the concerned stores-in-charge. There are around 10 people in each Manufacturing Division who are responsible and authorized to do the transactions. All transaction approvals are subject to the Final approval of the General Manager.

INV.RD.3.5

Setup Unit of Measurement

Glass Bottles manufactured by Zoujaj are represented in multiple Units of Measurement (UOM). Bottle Sales are recorded in Numbers (Unit/Each). However Sales Volumes are converted from Numbers to Metric Tonnes, based on the weight of the different Finished Products. As the production is measured in terms of Number, Pallets and in Metric Tonnes, Sales and Inventory Quantitaive figures are also converted into these Measurement Units for




comparison and Reporting purposes. The three common “Units of Measurement” in the order of priority are :

1. Each / Unit / Numbers2. Pallet3. Metric Tonnes ( MT)

INV.RD.3.6

Setup Cost Types Cost Type is Weighted Average Cost. All Inventories are stated at the Lower of Cost or Net Realizable Value. For Finished Goods, valuation is on Weighted Average Cost basis and includes Cost of Material, Labour and an appropriate portion of direct overheads (inc Factory Depreciation). All other inventories are valued at “Weighted Average Cost”.

INV.RD.4.0

Material Management

Planning All Items are subject to a Planning process. The production budget is adjusted for various factors such as the total production hours available in the month, scheduled maintenance hours, breakdown time, standard operating efficiency for each product type, etc. The final plan is arrived at taking into consideration the above factors. The plan is revisited every quarter / month based on the Nature of Material and Business requirements and the position of Sales Order Book. Raw Material and other material planning are based on the Sales Forecast Plan / Sales Budget. For Details of Planning Process refer to Annexure -2




INV.RD.4.1

Material Management

Receipts Material Receipts relate to the following items :S.No

Item Category

1 Raw Material incl Broken Glass, etc2 Moulds3 Labels /Decoration Material4 Spare Parts5 Consumables 6 Packing Material 7 Finished Goods8 Scrap - Worn-out Moulds, Empty Bags,

etc

For details of the Processing of Receipts and documents used in processing the receipts for these respective Item categories refer to Annexure - 3, 4, 5, 6 and 7.

INV.RD.4.2

Material Management

Issues The Procedures for Issue of Materials for the various Items and the documents and records maintained in tracking Item issues and the accounting is governed by the “Item Category” to which the Item belongs. For details of processes relating to Material Issues for the various Items refer to the Annexure -3, 4, 5 and 6.

INV.RD.4.3

Production Process - Material Management

Semi Finished Goods

Bottles coming out of the Main Production process i.e. in Product shape are categorized as follows:

1. Undecorated Bottles i.e. Bottles out of the main production process, but still on the production line awaiting decoration.

2. Plain Bottles lying loose i.e. palletized in trays but not shrink wrapped (before decoration)

3. Bottles in Shrinked Pallets4. Bottles not in Shrinked Pallets

All these Goods are treated as “Semi Finished




Goods” or Work-in-Progress.INV.RD.4.4

Production Process - Material Management

Held-Ware Management

Manufactured Bottles pass though an “additional inspection” process before finally moving the Finished Goods Inventory. Bottles released from the Production process are moved to a “Separate Location” for resorting and defect checks. The Good bottles are moved to the Finished Goods and defective bottles move to Scrap Yard for Culletisation. The bottle(s) in the Inspection Process for resorting and defect checking is the Held-Ware Management Process. This location is treated as a separate Sub Inventory.

INV.RD.4.5

Inter Division Transfers

Inter Division Inventory Transfers

Inventory is transferred between Divisions. The transfers are handled through “Inter Division Unit Accounts”. In case of Semi Finished Goods, Ex – Undecorated Green Bottles are transferred from Dammam Division to Riyadh Division for decoration. The cost of decoration, charges, if any, etc incurred by the division’s is debited to the respective “Inter Division Unit Account”. After decoration, the Finished Goods are moved to the Finished Goods Inventory Organization at respective division and shipped to the Customer directly from the location, i.e. they will not be routed back to Dammam Division.

INV.RD.4.6

Inventory Management

Aging Analysis

Zoujaj follows an Aging Analysis for Spare parts only, grouped into the following buckets for Aging purposes :

1. Moving Spare Parts 2. Slow Moving Spare Parts 3. Non Moving Spare Parts

Spare Parts categorization also determines the Inventory Accounting for the Spare Parts. Each categorization of Spares is grouped, accounted and tracked in a separate “General Ledger




Accounts” in the IFS General Ledger System.INV.RD.4.7

Inventory Management

Physical Verification

Physical verification is conducted at the following intervals : S.No

Item Category Frequency

1 Raw Material Every Quarter

2 Moulds Every Quarter

3 Labels /Decoration Material Every Quarter

4 Spare Parts Weekly5 Consumables Weekly6 Packing Material Every

Quarter7 Finished Goods Monthly8 Scrap – Broken Glass Monthly9 Scrap – Steel ( used

moulds) Quarterly

10 Scrap – Fabrication Waste Quarterly11 Scrap – Empty Containers,

Jumbo bags, etcQuarterly

Discrepancies, if any, during the Physical Verification are written off to respective material consumption accounts.

INV.RD.5.0

Container Management

Empty Pallets & Trays

Empty Pallets are the property of Zoujaj. Bottles are packed in Pallets & Trays for dispatch to Customers. At Zoujaj, some customer contracts do not mention about Pallet returns. However in cases of Customer Contracts with clause for “Pallet Returns”, follow-ups for return of pallets by Sales Department are made with the respective customers. A follow-up letter indicating the Pallets Sent, Returned and Balance Pallets On- hand with customers is sent to customers every month. The Pallets returned by Customers are taken into Inventory at “Cost”. The cost also includes the Cost of Transportation incurred in bringing the pallets back from the Customer Site to the respective manufacturing




divisions – Riyadh / Dammam. For details of processes refer to Annexure – 7.

INV.RD.6.1

Scrap Management

Broken Glass, Pallets and Trays

Non Saleable Finished goods are culletised into broken glass after obtaining the necessary approval from the competent authorities. Pads (non reusable) are cut into pads and used in the packing process. For details of processes refer to Annexure -8.

INV.RD.6.2

Scrap Management

Worn Out Moulds

Moulds are physically tracked in a separate Excel sheet maintained by the Moulds Department. This statement is cross verified with the Mould consumption statement (MS Excel) maintained by the Finance Department and used as a basis for depreciation and reconciliation with the IFS General Ledger. Worn Out Moulds are written off at Book value.

INV.RD.7.0



Manual journal are passed directly in the IFS General Ledger for accounting of Inventory Transactions and Valuation. 1. For Inventory – Spare Parts & Consumables,

they are maintained in a separate system called “Delta Inventory System” from which the details of Receipts, Issues and Closing balances of Spare Parts & Consumables are extracted on a monthly basis and accounted in the IFS General Ledger through a manual journal entry.

2. For Inventory - Raw Material, Packing Material, Enamels, Labels they are maintained in a Manual register and a consolidated entry is passed at the end of each month in the IFS GL System based on the consolidated statements submitted by the respective departments. The consolidated statements include Opening Stock, Receipts, Issues, Losses and closing




Inventory of materials like Raw Material, Packing Material, Labels, Enamels, etc.

3. For Finished Goods Inventory, they are maintained in an Excel Sheet. The “Cost of Sales” Statement is prepared and maintained by the Finance department. The Cost of Sales and Closing Inventory Balances is entered through a manual journal in the IFS General Ledger. The values of the Closing Inventory are also matched with the “Daily Stock Reports” maintained by the Sales Department periodically.


Process Relationships for Inventory

I. Inventory – Workflow for Inventory Management

II. Process Relationships for Item Master

III. Process Relationships for Receipt from Supplier


IV. Process Relationships for Returns to Supplier

V. Process Relationships for Issues of Material to Production


VI. Process Relationships for Shelf Life of Material

VII. Process Relationships for Stock Counting


Annexure -1 Details of Processes – Raw Materials

1. There are “Nine” major Raw Materials, which account for 100% of all Raw Materials procured and consumed in the Manufacturing Process at Zoujaj. All Raw Materials are tracked through “Individual and Separate” General Ledger Material Accounts. The following is the listing of Raw Materials procured and maintained at ZOUJAJ for production.

Raw Material1. Sand2. Limestone3. Soda Ash4. Feldspar5. Gypsum6. Coke7. Selenium 8. Iron Chromites 9. Cullet s ( Flint & Green

Separate)

2. Soda Ash which is a imported raw material is a high value item and even though it constitute 20% of the raw material mix for making glass, it constitute about 78% of the total raw material cost. The raw material mix for producing one ton of glass is as below:

Raw Material required for producing 1 MT of Glass

Raw material Kgs/MT (Flint)Kgs/MT (Green)

Sand 693.99 681.64Lime stone 192.69 190.93Soda Ash 231.78 237.71Feldspar 58.28 66.06Gypsum 6.78 4.77Selenium 0.009 --Iron chromite -- 4.29Carbon 0.233 0.191

Total 1,183.762 1,185.591


3. Cullet (broken glass) is not a part of the Raw Material Batch Mix. 100% glass can be produced from cullets. So, when cullet is fed into the Furnace to melt the glass, the raw material batches to furnace will be reduced to maintain the “Glass Pull” required from the production lines. In Riyadh Factory the cullet % added to make glass in furnace is about 11% and in Dammam Factory it is 20%. Cullet is generated in Production (Glass Pulled – Glass Packed = Cullet) which goes “direct” to cullet yard in conveyors. It will be loaded to cullet silos using a “Pay Loader” for glass recycling. Further, Foreign cullet (purchases) is procured from Bottle fillers or thru Cullet collectors. These cullets will be resorted and feed into cullet silos for recycling. The benefit from cullet is:

i. Glass can be 100% recycled

ii. Low energy consumption for Melting Glass Vs. Raw Material to form glass

iii. Increases the furnace life.

The average production efficiency at Riyadh Production facility is 90% (i.e. 10% cullet) and Dammam Production facility is 85% (i.e. 15% Cullet). The 10% and 15% cullet generated internally by the respective divisions in the production process is sent to the Cullet Yard through conveyors. The Cullet is fed from the Cullet Yard to the furnace based on the cullet requirement.


Annexure -2 Details of Processes – Item Planning

1. Raw Material Planning

Raw Material planning is done by the Batch & Furnace Supervisor. The plan spans across all the 12 months for the year. A monthly schedule is given to the Procurement Department (based on the Production Plan) for the procurement of Raw Materials. The plan is prepared and passed to the Finance Department for verification and passed to the concerned department. This plan is forwarded to the General Manager for discussion and finalisation at the Executive Committee Meetings and forwarded for the Board of Directors for approval. The approved plan is circulated to the Departmental Heads. The Material plan is revisited every quarter and is adjusted based on the Sales Plan movements.

2. Spares and Miscellaneous Items Planning

The respective manufacturing divisions in co-ordination with Inventory department are responsible for planning of spares which are routinely used. Also there are manual requests that are raised from departments which require specific materials. Inventory department personnel, based on the past experience are aware of how much minimum and maximum quantity of stock to be maintained for each material and they maintain the required stock. No standard list is available for the minimum and maximum quantity to be maintained. It’s only based on the experience of the inventory person who checks the stock and replenishes when it crosses the minimum quantity. Each production and production support department also plans for some of the spares and miscellaneous items that are required for one month (not fixed) in future and are requested from the main stores.


Annexure -3 Details of Processes – Procedure for Raw Materials

I. Procedure for Receiving of Raw Material into the Stock Yard for Sand, Limestone, Soda Ash, Feldspar, Gypsum, Coke Powder, Selenium, and Iron chromites

1. Once the truck reaches the Factory Site, it is directed to the Weighbridge Site for Qty recording. Qty is recorded by the Batch Yard Personnel at the Weighbridge Site. The recording process is computerized.

2. The Qty is unloaded at the Bay (Stock yard) and a Receipt is generated.

3. Samples are collected by Batch Yard staff and forwarded to the Chemist.

4. The Chemist performs the Raw Material analysis tests as per ISO standards for all the incoming Raw Materials and submits the report to the Batch & Furnace Supervisor on a daily basis as and when tests are performed.

5. If the chemist reports any out of tolerance test result, the Raw material is rejected. The Supplier and Zoujaj PO Dept are intimated immediately by the Batch & Furnace Supervisor.

6. If the Chemist report is positive or within the acceptance norms, the material is received into the Bay and a formal receiving report is prepared and forwarded to the Batch & Furnace Supervisor.

7. MRN is prepared by the Batch & Furnace Supervisor for all the Raw Materials passing the chemist tests. This report is also sent to Finance Department.

8. At the end of the month, a consolidated MRN is prepared by the Batch & Furnace Supervisor and sent to the Finance Department with copy to General Manager. Finance Department uses this as the “Final” report for settlement of Supplier invoices.

9. Iron Chromites (for Green color Glass) are used in Dammam Division and received at Dammam Division, like wise Selenium (for Flint color Glass) is used in Riyadh Division and received at Riyadh Division.

II. Transactions and Documents / Records used in the Raw Material Transactions :

1 Transfer of Raw Material from Raw Material Inventory Organizations to Production -(Manufacturing)

2 Transfer of Raw Material between Divisions ( Balancing Segments i.e. Riyadh Division and Dammam Division)


3 Transfer of Raw Material within the Inventory Organization i.e. Sub Inventory Transfer, Transfer between different locations i.e. Stockyard (Bay), Warehouse, Racks, etc.

4 Documents / Records maintained / used in the Transacting Raw Material activities are Raw Material Stock Register and MRN’s.

5 Reports - Material Consumption Report detailing Opening Stock, Receipts, Issues, Wastage, Closing Stock, Reconciliation Report and Manual Stock Register.


Annexure -4 Details of Processes – Procedure for Spare Parts and Consumables

I. Procedure for Receiving and Movement of Spare Parts and Consumables

1. All Spare Parts and Consumable Items are categorized as “Import “and “Local”.

2. A copy of the Purchase Order is sent to the Store Keeper.

3. The Local supplier delivers materials at the Store along with the copy of the Purchase Order and copy of the Invoice

4. During receipt of items, a MRN is prepared by the Store Keeper and received into the Stores. For Import Items the packing and Quantity of Material / Items is checked with the Packing List and with Purchase Order. The Store Keeper shall inform the Production supervisor for inspection of parts.

5. For new Items, a unique code number is assigned to the spare parts.

6. Items once received into the store are moved to the respective storage racks.

7. The Production Supervisor who placed the order “test-checks” the delivered items and signs the MRN for formal acceptance. In case of rejection(s)/shortage, a report is prepared by the Production Supervisor and sent the Purchasing Officer. The Purchasing Officer intimates the supplier of the rejection / shortages and the supplier will replace the defective parts / Items.

8. All Issues made to respective departments are maintained manually in a Material Issues Register and signed by the supervisor’s of the respective receiving department.

9. A report is prepared at the end of the very month detailing the Opening Stock, Receipts, Issues and Closing Stock. This report is signed by the General Manager certifying the stock details which is forwarded to Finance for accounting.

10. Spare parts are categorized as follows: Moving, Slow Moving and Non Moving Spare parts. They are maintained in separate GL accounts in the Delta Inventory System and also in the IFS General Ledger system.

a. Store No: 1 – “Moving” Spare Parts representing Spare parts for routine / day –day operation of Plant Maintenance.

b. Store No: 2 – All Consumables utilized in the production process are stored in this location. There is no categorization for Consumables. Item coding is used for Consumables.


c. Store No: 3 – “Slow Moving” Spares or Critical Items required during Preventive Maintenance. These spare parts are not used in daily maintenance activities.

d. Store No: 4 - Non Moving Spare parts (obsolete spare parts) are stored in a separate location. Items recognized as Non Moving spare parts are moved from the other spare parts stores into the Non Moving Spare parts stores. Majority of the Items in the Store no 4 – Non Moving stores are valued at 1 Unit – 1 SAR.

11. Provision for Spare Parts : Zoujaj has a policy in place to provide for Provision for Spare Parts Inventory to bring down the Spare Parts values as per acceptable “Glass Industry Standards”. The Provisions are created on a yearly basis to bring down the spare parts value to about 7.5% of the total depreciated book value of Plant & Machinery (NBV). The Provisions will also be utilized to write off redundant spare parts on a yearly basis with approval from competent authority. Based on experience, Zoujaj believes spare parts worth about SR 3 million is moving on a yearly average basis. So, spare parts provision will be continued till spare parts value are brought down to about SR 3 million.

II. Systems, Transactions, Documents and Records used in the Spare Parts and Consumables Transactions :

1. “Delta Inventory System” maintains details of Receipts, Issues and Closing balances of Spare Parts & Consumables.

2. Transfer of Spare Parts and Consumables between Divisions (Balancing Segments i.e. Riyadh Division and Dammam Division).

3. Issue of Spare Parts to Maintenance Department and Production Department.4. Transfer of Spare Parts/ Consumables within the Inventory Organization i.e. Sub

Inventory Transfer, Location transfer i.e. Storage Racks.5. Documents / Records maintained / used in the Transacting Raw Material activities

are Raw Material Stock Register, Material Issues Register and MRN’s.6. Reports – Material Consumption Report detailing Opening Stock, Receipts, Issues,

Wastage Closing Stock and Material Reconciliation Report with MRNs


Annexure -5 Details of Processes – Procedure for Packing Material

I. Procedure for Receiving and Movement of Packing Materials

1. Packing Materials include Pallets, Carton Trays, Carton Pads, Shrink wrap Rolls, Plastic film rolls.

2. After the truck reaches the factory Site, the truck driver gives the receipt to the Main Gate guard for security stamping. The Main Gate guard intimates the Inspection and Packing Foreman. Upon clearance by the Inspection and Packing Foreman, the truck is moved into the factory premises for unloading.

3. The shipment is unloaded and verified for quantity correctness with the Receipt provided by security duly stamped.

4. The Fork Lift driver will unload the material into the Packing Material Warehouse close to the Packing Machine.

5. Every month a consolidated consumption report detailing Opening stock, Receipts, Consumption, and Losses signed by the Inspection Supervisor and production Manager is sent to Finance Department for Accounting and Reconciliation. Normally Loss / wastage percentage is around 2%.

6. In case of Defective material, a complaint report is prepared and sent to the Purchase Department for necessary action.


Annexure -6 Details of Processes – Procedure for Enamels and Labels

1. Enamels are 100% Imported Items and Labels are supplied by the Local suppliers. a. Enamels are segregated as Leaded, Unleaded and Organic Enamels. b. They are categorized color wise also like white, red, green, yellow etc. c. There is supplier code for each type of enamels for identification purpose as

there is different type of enamels of the same color used for decorating different bottle types.

2. For Pepsi Cola Inc, Labels are purchased by Zoujaj for decoration etc. In case of other customers, the labels are supplied by the respective customers.

3. A 2 % process loss is allowed as normal wastage. All losses are managed within this norm.

4. For customer supplied labels a separate register is maintained and a report is prepared and sent to the Sales Department which is formally sent to the customer.

5. For Enamels, Procurement is based on the Production Plan (Annual). Enamels are subject to Caustic Resistance Test as per Bottling Company Standards (Coke and Pepsi Cola). For rejections, the enamels are returned to the supplier and a debit note is raised on the supplier.

6. Every month a consolidated consumption report detailing opening stock, receipt, consumption, wastage signed by the Inspection Supervisor and production Manager is sent to Finance Department for accounting and reconciliation.

7. In case of Defective materials, a complaint report is prepared and sent to the Purchase Department for necessary action.


Annexure -7 Details of Processes – Procedure for Finished Goods

Procedure for Movement of Goods – Production to Finished Goods

1. All Finished Goods (bottles) manufactured pass through the QC process.

2. A Packing Machine is placed at the end of each Production Line. Bottles released from the Manufacturing process after QC check get packed in Pallets & Trays and moved to Shrinking Wrapping Machine for Wrapping. The Shrink Wrap operator affixes a tag provided by the QC department to the respective Pallet. The tag specifies the Bottle code, Packing Composition, Pallet Tag No, Production Date, and Production Shift No & Product Description.

3. The Shrink Wrap Operator maintains a Log Book (Manual) date wise, shift wise and Production Line wise to record the movement of Finished Goods released from the Production Line to the Loading Area (Finished Good Warehouse).

4. Once the Packing slip gets assigned to the Pallet (upon completion of shrinking process), the Fork Lift Operator moves the pallets to the Loading Area for dispatch.

5. The Log Book data is used by the Sales Department for updating the Finishes Goods Stock Records.

6. The Log Book data is entered in the Daily Stock Report (DSR) by Sales Department and is sent to Finance Department for Finished Goods Inventory Reconciliation and Accounting. Finance Department reconciles the data furnished by the Sales Department regarding sales, Production Report regarding finished goods produced being furnished by the Production Manager for Final Reconciliation. Any discrepancies are notified to Sales Department and Production Manager for necessary adjustment / correction. Productions quantities in cost sheet are taken from Production report prepared by Production Manager. Sales quantity in cost of sales statement is taken by finance department from Sales Department. Finished goods inventory in “Cost of Sales” statement showing Opening Stock & Value, Production Quantity & Value, Sales Quantity & Value, Closing Stock & Value is reconciled periodically by the Finance Department with stock as per Daily stock report. Periodical physical count of bottles will be carried out to match the Physical stock with Daily stock Report. Year end physical count is also carried out for all inventory items.


Annexure -8 Details of Processes – Procedure for Container Management I. Procedure for Container Management – Empty Pallets and Trays (Cartoons)

1. All Empty Pallets and Trays are returned by Customer to Zoujaj at “Cost to Zoujaj”. The cost of returned pallets is the transportation cost incurred in bringing the pallets from the customer site to the Manufacturing Divisions.

2. The Customer returned pallets are received into a separate location at the Factory site. All returned pallets received at the location are inspected are segregated as “Good” and “Damaged” Pallets.

3. Dammam Division pallets are sometimes received at the Riyadh Division. These pallets received are accumulated and sent to Dammam Division.

4. Riyadh Division Pallets received at Dammam Divisions cannot be used at Dammam Divisions and vice versa due to size and specification variation, as the Item specification of bottles manufactured at the divisions differs. Each division manufactures bottles unique in specification applicable to the respective division.

5. Penalty for Non Return of Pallets : Few customer contracts also have a “Penalty clause” for non return of Pallets

6. Monthly Reconciliation and Reporting: Every month a pallets in hand with customers report is prepared (for customers who return regularly) and value calculated based on the “Pallet with Customers Report”. This value is taken for the “Pallet Inventory Account – Pallets with Customer’s Account “and reported as part of the Inventory.

7. Export Sales: In the case of Export Sales, Cost of pallets (sent with the goods) is treated as an “Expense”, as it is not an economical transaction to ship back the empty pallets from long distance / overseas customers.

8. Pallet Inventory : Pallet Inventory count is arrived as follows :

S.No

Pallet Inventory Amount

1 Empty Pallets in Hand XXXXX2 Pallets with Bottles (in Stock) XXXXX3 Pallets with customers who return

regularlyXXXXX

Total Pallets Inventory XXXXX


9. Empty Trays : There is no agreed terms with the customers for return of empty trays. If the customer returns trays, they are received and sorted out and reused. Trays in good condition are reused “AS IS”. Damaged Trays are cut into Pads to be used in the packing process for stocking bottles. Reusage of Trays in this way “partially’ helps in reducing the procurement costs for trays and pads.


Annexure - 9 Details of Processes – Procedure for Scrap Management

Culletisation of Finished Goods: Non Saleable Finished goods are culletised into broken glass after obtaining the necessary approval from the competent authorities. The identified Finished Goods are transferred from the Finished Goods Inventory Warehouse to the “Cullet Yard” for Culletisation. Glass is 100% recyclable and Raw Material can be recovered. The details of processes are as follows:

1. Identified Finished Goods are transferred to Cullet Yard at “Raw Material Cost” only.

2. As the Finished Goods are valued at Manufactured Cost, Other Costs ( other than Raw Material Cost) is transferred directly to “Cost of Goods Sold” under a separate head – “Manufacturing Loss – Bottles Culletised” Account.

3. Cullets are directly fed into the Furnace for melting and glass formation.

4. Accounting Entries for Culletisation is as follow :

Glass / Flint Cullet Inventory Account DrManufacturing Loss – Bottles Culletised Account DrFinished Goods Inventory – Bottles Account Cr

.


Annexure -10 Details of Processes – Inventory Accuracy Process

At ZOUJAJ, the inventory verification process is a continuous process. Since the total number of people available for verification is few, the counting is not restricted to a specific day of the year. The counting is done for every storage location once in a year. There is a schedule existing with ZOUJAJ as to which inventory has to be counted on which day and which month. On any given day in a financial year, one or more than one storage locations will be undergoing inventory accuracy process.

Process of verification

- Inventory department verification personnel visit the particular storage location that is identified for counting.

- Manually count /weigh the items and makes a note of the available quantity.

- Verifies the counted quantity against the manual record maintained.

- In case of any shortages, the store keeper is responsible for the discrepancy.

- If excess quantity is available, a receipt note is prepared and the material availability is recorded.

Presently in ZOUJAJ cycle count is not followed. But for some subinventories there is no accuracy process being followed.


Current Business Process Documentation

Critical Requirements Streamlined Material Handling - Store, Issue, and Receipt. Item Classification and coding of Finished Goods. Coding for Raw materials, Packing material, Labels, Enamels and Moulds Item Stock Location Accuracy- concurrence with physical location and book

location. Physical Stock Count and Adjustment. Safety Stock of Spares Follow up with supplier for material delivery Landed Cost Management for Inventory Receipt valuation Inventory Aging Analysis Transfer of Held-Ware Stock Inventory to Finished Goods Inventory after resorting

of Bottles Transfers of Semi Finished Goods – Example Plain Bottles awaiting decoration are

moved to the Semi Finished Goods Inventory Organization for decoration and after decoration are finally moved to Finished Goods Inventory Organization as well as transfer between divisions for decoration thru location transfers.

Inter Division transfer of Inventories like raw material, packing material, moulds, enamels, thru' inter divisional unit accounts at each division.

Current Benchmark Activities Approval hierarchy for issue of all Materials Perpetual Physical Inventory process. Material receipt and storage Material Log Book for Issues

Current Bottlenecks Item categorization Finished Goods Item coding structure No proper Inventory planning method available, including for spares. The entire

planning is done based on the experience of the ordering department personnel. Traceability of Items in various stores/ sub-stores/ locations. ABC classification and cycle count process is not followed Records are maintained manually Approval process is Manual PO tracking and follow up is Manual Inventory values cannot be adjusted to latest market price if cost is higher, at the

year end.


Open and Closed Issues for this Deliverable

Open Issues

ID Issue Resolution Responsibility Target Date

Impact Date

Closed Issues

ID Issue Resolution Responsibility Target Date

Impact Date


Appendix 1 – Inventory Process Questionnaire

Process Analysis Questions Type = Setup

Process Performance

Application

Response

What is the present method used to determine the inventory accuracy?

ProcessINV Physical counts, annual and as needed.

How often do you count all your items in any given inventory location?

ProcessINV Every week / Monthly

Who will be responsible for cycle counts? INV Stores DeptDo you do automatic cycle counts for items that show “zero” on hand quantity? INV NADo you allow inventory adjustments independent of cycle counts and physicals? INV YesWho is authorized to do inventory adjustments? INV Finance DepartmentDo you need management sign-off of adjustments beyond a certain dollar value INV NAWhat are your inventory tolerances INV +/- 2%Do you require recounts on out of tolerance parts INV NADo you research inventory variances? INV YesWhat is the accuracy by inventory location and / or by ABC class? INV +/- 2%Is there any incentive system for maintaining or improving the inventory accuracy goals INV NAWhat is the overall accuracy goal? INV 95%What was your last inventory accuracy measurement? INV 99%How often is production stopped due to shortages? INV NAHow many parts are on a daily shortage list? INV Critical Spare partsIs there an incentive system for maintaining or improving the inventory accuracy goals? INV NADo you actually count components in WIP or just value the location? WIP,INV InvWhat analysis is done on variances at period close? INV Inventory Stock Movements AnalysisDo you use standard cost rollups? INV,COST NADo you simulate costs? INV,COST NADo you do any actual costing? INV,COST YesHow often do you update product costs? INV,COST MonthlyHow do you cost and value inventory at each of the sites? INV,COST Average CostingFile Ref: document.doc Zoujaj / Sierra Confidential 37


Process Performance

Application

Response

What kind of costing method is used at present? INV FIFOAre you running your business with reliance on miscellaneous transactions? INV YesDo you manufacture or perform any value-added functions at your remote sites? INV,WIP YesDo you differentiate service locations from warehouse and manufacturing sites? INV YesIs there a central item maintenance function? INV YesDo you manufacture the same product at multiple sites? INV,WIP YesHow do you cost and value inventory at each of the sites? INV At Manufacturing CostDo you ship products between sites? INV, OM,PO YesDo you drop-ship from your remote sites to customers? INV, OM,PO YesDo you use an internal requisition system? INV, OM,PO NoDo you use sales orders to ship against warehouse purchase orders? INV, OM,PO NADo you have separate sub inventory for returned goods? INV,OM YesWill you keep obsolete parts to repair customer returns INV NAHow do you receive the product into your plant? INV MRN, Gate PassDo you have warehouses and manufacturing orgs in different geographical locations? If Yes are the locations regionalized INV YesDo you differentiate service locations from warehouse and manufacturing sites? INV YesDo you maintain products at multiple sites? INV YesDo you use approval methodology for transferring materials between warehouses? INV YesAre items manufactured in your organization? INV,WIP YesDoes transactions between warehouses require document approval process (Move order functionality)?If yes who is responsible for creating the document INV YesHow is the item code structure maintained presently? INV As per the ISO standards How many items are available presently and how many are asset and expense items? INV < 8,000How do you want to categorize your items? INV By its natureHow many Unit of Measurements are used? INV Multiple , around 6Are there any UOM conversions used?. If Yes, what are they? INV YesAre the items related to customer or Manufacturer parts? INV YesAre the items having a Lot expiry period? INV YesFile Ref: document.doc Zoujaj / Sierra Confidential 38


Process Performance

Application

Response

Do you use serial numbering system for your products? If Yes, how are they generated presently? INV YesIs Lot numbering used? INV YesAre the items stored in specific Locators? INV YesIf Yes, are they prespecified or dynamically entered? INV DynamicallyDo you ship from multiple locations? OM,INV YesDo you check Available to Promise prior to quoting ship date? OM,INV YesHow do you measure the time it takes to close your accounting period? INV DaysHow long does it take to close your accounting period? INV 4-5 DaysDo you reconcile transaction logs on a regular basis? INV ManuallyDo you use physical inventory? INV YesHow often do you take physical inventories? INV MonthlyDo you create inventory tags? INV YesDo you have a separate physical inventory database? INV NoDo you freeze inventory? INV YesDo you use buyers and planners? INV YesDo you use any planning methods for your inventory? INV YesIf yes, what kind of planning is adopted and at what levels this planning is done? At Sub inventory or at Organization level INV Organization Level Is Kanban methodology used? INV NADo you have buyers and planners who work specifically with new product introduction?

INV, PO, MRP Yes

How do you check Available to Promise for configured orders? OM,INV With production plan and Sales PlanDo you give the customer a ship date while on the phone? OM,INV Yes, as per the terms of the customer agreementHow many orderable products do you have? OM,INV 15Do you sell multiple units of measure for a single product? OM,INV YesDo you sell expiration dated material? OM,INV NADo you have a material catalogue? OM,INV Yes

What kind of reports is used at present? INVMaterial Stock Ledger, Bottles on Hand Statement

How do you ship replacement product? INV, OM As per terms of the agreementIs the replacement order a non-revenue shipment? INV, OM YesDoes the return shipment reference the original Sales Order? INV, OM Yes

How do you account for scrap due to rework? INV, WIPAs per Business rules mentioned in the document

Does rework impact standard production capacity? INV, WIP NAFile Ref: document.doc Zoujaj / Sierra Confidential 39


Process Performance

Application

Response

Do you receive returns to a repair center? INV, OM Not Repair Center , but to a Cullet Stock YardDo you have a formal material review board for returned goods disposition INV, OM YesHow many locations do you ship from? INV, OM MultipleDo you have specific locations for specific shipments? OM,INV YesIf one warehouse does not have sufficient goods for the order, do you transfer goods from other warehouses? OM,INV Yes , through Interdivisional Control AccountsAre material shortages an issue for your operation? INV YesDo you issue standard production to the floor using miscellaneous issue transactions? INV, WIP YesDo you ship any product to customers using a miscellaneous issue transaction? INV NAHow many miscellaneous transactions do you perform in a week? INV NAWhat kinds of transactions are presently used? INV NAHow many transactions are expected to be done every day / week INV NAIs there any transactions that will be done between organizations, if Yes is there any charge involved INV

Transfer of Raw Material, Spare parts, Enamels, Cullets etc

Is Miscellaneous transactions are used? INV YesIs Inventory adjusted using miscellaneous transactions? INV YesAre material shortages an issue for your operation INV YesDo you use ABC classifications? If Yes what is the criteria that you use to derive ABC values INV NAHow do you group your material counts? INV NADo you reconcile transaction logs on a regular basis INV YesWhat is the present method used to transfer materials between organizations INV

Inter Division Transfer Forms for both Divisions – Riyadh and Dammam
