A U D I T I N G

P R O J E C T
P H A S E O N E

COMPANY: PACKAGES

AREA ALLOCATED: INVENTORY

PRESENTED TO: SIR ABRAR JAMIL

BY: ARSLAN AHMAD ZIA

11-10660
 PACKAGES
DEPARTMENT: SUPPLY CHAIN MANAGEMENT- STORES & INVENTORY

Approximate quantity on inventory: 20 billion

Number of stores: 20 large stores

System used: SAP

Achievement: were certified with ISO 9001-14001 in year 2009

DEPARTMENT STRUCTURE
Flowcharts
NARRATION

First of all the Production and Planning department receives a job order, which is checked by
the manager plant whether the order has come into the right plant or not and then it is filed job
number wise. Based on that job order the Planning division prepares the Bill of Material(BOM).
In the BOM there is a recipe made in which the method of production and the material needed is
stated. The BOM is also checked by the Planning manager. From the BOM the department
makes a Issue Requisite (IR) which is sent to the stores. In the IR the user department
demands for the required quantity of material needed. The store keeper of the stores first of all
checks the document, whether the document is authorized by the right person or not. Then one
copy is saved in the store after the manager of that store approves the release of the material.
After the material is released the store officer updates the Material Master. In the material
master there are all the updates made for the material moving in and out of the stores, there is
proper check on the level of inventory. As the material master is an application of SAP and all
the concerned departments have access to it, the accounts department updates the cost
centers.
NARRATION

The procedure is very similar in case of any department needing miscellaneous items, spare
parts and stationary. In this case the first step would be taken by the user department. First of
all the user department will make a IR of whatever goods they need. That ir will be approved by
the head of that department before reaching the store. In the store, the store keeper will first of
all check the signature of the authorized person, then he would go to the junior executive for
approval of good and then if approved the demanded goods will be issued. There would be two
copies of that IR, one kept in the user department and one kept in the store. Then the store
officer will update the material master which will be communicated to the accounts where the
cost center of the user department will be updated.

Attached: copy of GOODS ISSUE BOOK

IMPORTANT

The above two flow charts are for the Issue Requisites made by hand and are physically
delivered to the stores. In most cases there are Good issuance Notes generated on the system
(SAP) and communicated to the store and the other departments.

Attached: copy of computer generated GOOD ISSUE SLIP

 SAP
Goods Issue

Goods Issue (GI) is a document used by the Store to issue the material on the basis of the IR
(Issue Requisition) from the concerned user department.

Goods will only be issued against the Goods Issue Slip (Issue Requisition). Once the Goods
Issue is entered in the system the stock quantity as well as value will be updated automatically
and relevant accounting entry will be posted in the system.

The Goods Issue Slip can be created either automatically through system against job or
maintenance orders or manually on ad hoc basis.

In case additional material is required for an order, the concerned department will fill another
material issue slip manually duly approved by the department head and forward it to the Stores
Department for issue of materials.

Goods Issue Slip will contain the following basic information:

• Material No.
• Material Description
• Issued Quantity
• Unit of Measure
• Issue Date
• Cost Center / Order No.

Goods can be issued on the following basis:

i. Job / Production Orders

ii. Cost Centers (Department)
iii. Maintenance Orders
Against Job Orders

The respective user department will process an Issue Requisition in the system against the
production order and a printout will be forwarded to the Stores Department. The Store
Department will issue the materials and record the Goods Issue in the system.
In case the goods cannot be issued in the exact quantity as mentioned in the Bill of Material
because of the standardized quantities, the Store Keeper will over-write the amount mentioned
in the Goods Issue Slip and issue the revised standard quantity.

Cost Centers

The goods that cannot be allocated to a job will be issued against cost centers. The respective
department will fill out the Issue Requisition Slip, assign the cost center and send it to the
department head for approval. The approved IR will be forwarded to the Costing Department for
verification of cost center and the Stores Department will then enter the Goods Issue in the
system.

Maintenance Orders

The respective user department will process an Issue Requisition in the system against the
maintenance order and a printout will be forwarded to the Stores Department for issuance of
stock. The Store Keeper will record the maintenance order number on the goods issue
document and post it in the system.
Stock Transfer

Transfer posting or Stock Transfer is a process used by the Stores Department to transfer
material from one location to another location, usually from one plant to another.

The Stock Transfer document will be created in the system which will contain the following basic
information:

• Material number
• Description
 • Date
• Transfer Quantity
• Issuing Plant
• Issuing Store
• Receiving Plant
• Receiving Store

Storage location to another storage location within the same plant

The user will fill out the Stock Transfer Note (STN) and send to Store for transferring the
material quantity from one Storage location (issue from Store) to another Storage location
(receipt in Store). The system will only generate a Material Document and no accounting entry
will be posted.

In case of material transfer from purchasing centers to Packages, the Commercial Department
will create a Stock Transport Order in the system, the cost of the freight will be additionally
added to the actual cost of the material through appropriate condition type and the same will be
paid to the transporter. The Store Keeper will enter the GRN in the system with reference to the
relevant Stock Transport Order.

Plant to another plant

The user will fill out the Stock Transfer Note (STN) and send to Store for transferring the
material from one Plant Storage location (issue from store) to another Plant Storage location
(receipt in store). If both plants are assigned to different valuation areas, an accounting
document will also be created in addition to materials document.
 INTERNAL CONTROLS

• Security- all the inventory is insured (with IGI), there are cameras installed everywhere,
armed guards.

• Physical check- the supply chain department itself does the physical count of the
inventory on a regular basis and the internal audit department does surprise visits t the
store for the physical count.

• There is authority given to lower management as well, for example the store keeper in
the stores has the authority to issue goods.

• Proper accounting methods are used. FIFO is used for the evaluation of inventory.

• All the transactions done in a day are matched against the hard copies so that the any
errors made can be omitted.

• Safe working conditions- all the workers in the plants are suppose to wear the protective
measures.

• Goods issue document number will be generated by the system automatically.

• The system will automatically update the quantity as well as value at the time of Goods
Issue.

• The system will not allow posting of the document, if the stock quantity is less than the
quantity required to be issued.

• Only the Stores Department will be authorized to enter Goods Issue in the system.

• Only the Store Incharge will be authorized to cancel a Goods Issue document in the
system.
• Goods will be issued to the user department against an approved auto-generated or
manual issue requisition.

• Goods Issue is a single step process, therefore, there is a risk that the Store personnel
entering the Goods Issue may charge off an issue to expense and misappropriate the
item. In order to minimize this risk, the Stores Incharge in the Stores Department and the
Inventory Section Incharge in the Accounts Department will review the Goods Issue
Listing on a regular basis and identify and investigate large and unusual items.

• The Store Department may charge the incorrect account or cost center with the value of
the goods issued. The Accounts Department will need to review the Goods Issue listing
daily to identify errors.
 QUESTIONNAIRE

 Is too much money tied up in your inventory?

 Do frequent shortages in inventory occur?

 Does an excessive inventory discrepancy occur?

 Is there are a lot of obsolete and/or non-moving items on stock?

 Does the company have realistic safety stock levels?

 Does the company have realistic reorder point levels?

 Does the company have realistic inventory lead times?

 Are inventory control policies and procedures documented?

 Are inventory records kept up- to-date for all materials?

 Are inventory records regularly verified by actual count?

 Are incoming and outgoing goods properly checked?

 Are surplus and scrap items properly recorded and controlled?