Chapter 3

3. Data presentation and analysis

Introduction to the chapter

This chapter deal with the interpretation and analysis of the data collected through structured interview, manual and

observation.

3.1 Background of the company

Pharmaceuticals and Medical Supplies Import and Whole Sale share company,(PHARMID) is an organization

established to supply imported and locally produced hermetical and medical supplies with the following business

objectives:-

- To supply imported and locally produced pharmaceutical and medical supplies primarily dealing with

country’s major health problems.

- To stabilize the market and prices of the basic pharmaceuticals and medical supplies and

- To engage in any other related activities necessary for attainment of the company's purpose.

- PHARMID has already been re-established in 1994 E, C. as a share company. By know it’s Asset & capital

is amounting to birr 500,000,000. The total employee of PHARMID is 603 and they are engaged in various activities

during 1999 -2000.

The categories of the employees are:

Professionals 85

Semi professionals 102

Vocational 78

Others 360

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3.2 Organizational structure of PHARMID

PHARMID led by board of directors and one General Manager leading different functional departments

including audit, legal, planning and project, and MIS service. In addition to that PHARMID have ten branches And

two of them found in Addis Ababa the remaining branches are in

The regional states.

3.3 Inventory control system of PHARMID

Inventory in Pharmid comprises Pharmaceuticals, Chemicals, Medical & Supplies & Instruments for reporting

purpose; goods in transit shall be included as inventory. All expenses such as inventory price, freight, insurance,

customs, Bank charge etc incurred in obtaining an item of inventory shall constitute the cost for that item.

Stock cards shall be maintained by finance & cost department for each item of stock in both quantity & values. The

stores & finance records shall be reconciled regularly.

Stores shall maintain bin cards for each type of medicine, chemicals…items showing its expiry date, quantities

available at any one time.

3.3.1 PURCHASES of PHARMID

PHARMID Purchases all pharmaceuticals, medical supplies, chemical and diagnostics, medical instruments,

narcotics, etc. and other expense items such as stationery, cleaning materials, etc

Purchases may be local purchases, i.e. goods purchased in Birr form a supplier in Ethiopia either for cash or on

credit, or foreign purchases i.e. goods imported by the company from a broad.

3.3.1.1 LOCAL PURCHASE in Pharmid

Local purchase comprises of the acquisition of goods & services by the company from a local Factories & Supplies

or in general from a local market.

3.3.1.2 FOREIGN PURCHASE in Pharmid

Foreign purchase comprises of the acquisition of various pharmaceutical, instrumental, medical supply & chemical

stocks from overseas.

Purchase order

-purchase orders are initiated from distribution department & sent to procurement.

- Procurement department shall check its completeness & register it & passes over the purchase order .

- after the approval of the purchase order by purchasing committee, General Manager & Board ,foreign

purchase department prepares price quotation in accordance with the set-up policy & distribute to potential suppliers

for providing their offer.

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- Up on the receipt of quotation tender from the suppliers, further analysis shall be carried out in accordance

with the guidance specified under quotation.

- Award of bid shall be granted for the winner of the bid final pro-forma shall be requested the supplier.

- up on the receipt of final pro-forma foreign purchase department process the formalities to secure import

permit & letter of credit.

3.3.2 INTERNAL CONTROL over Inventory of pharmid

The over all control procedures in the organization follow manual system.

All the documents used procedurally applied & activities are well designed & update.

The fundamentals of a sound system of internal control over purchases are as follows:

Responsible officials should authorize purchases in accordance with purchase regulation of the company for

obtaining pro-forma invoices, quotations, etc.

Cash purchases will be made on the basis of authorized purchase requisitions, pre-numbered purchase orders being

prepared for all credit purchases.

The procurement Department prepares a Local purchase Follow - up Register with the following columns, to control

that orders are promptly fulfilled: Purchase order no, Purchase requisition no, Date, Description, Quantity, supplier,

Goods receiving Voucher no., and remarks.

Where goods ordered is not available or the order was only partially filled, this fact should be noted in the remarks

column.

A Foreign purchase follow - up register must also be maintained by the purchasing Department to provide full

information on the exact situation of each import order as follows:

Order No. And date, Supplier's name, Description of goods and quantity, Supplier's invoice no., and amount,

Insurance credit no., Date import permit applied for, C.B.E. permit no. And date, Letter of credit no., date and

validity, Letter of credit extension dates, Bill of leading no. And date, vessel name, port of departure, port of arrival.

3.3.3 Goods receiving voucher in Pharmid As stated in company's manual & as the practice of Pharmid goods receiving voucher is prepared by stock

clerk based on the invoice and sign by storekeeper after the requirements are fulfilled. There requirements are

appropriate requisition /purchase order, suppliers delivery order to invoice as to quantity, packing list, transits

transfer voucher, if there missing item, damages etc identify on the goods receiving Vouchers. All goods receiving

Voucher approved by distribution head or the assigned person distributor the original or the 1st goods receiving

voucher to cost and budget (finance), the 2nd copy to distribution department, the 3rd copy for bin card and the

remaining is left on the pad.

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3.3.4 Non - financial inventory in PharmidPHARMID is holding non - financial inventory comprising items such as medicines used for clinics. Cleaning and

repair and repair materials spare parts fuel, and other expenses items which are purchased for immediate

consumption even through, items that are not used immediately will be kept in the stocks,

3.3.5 STOCK -PHYSICAL INVENTORIES of Pharmid

A sound stock control system requires that stock record cards in quantity be maintained independently of

stores by the accounts section, that the quantity balances be regularly agreed with the stores bin cards, however,

goods recording control it is nevertheless necessary to take physical inventories of stock are in usable condition. It is

recommended that inventories of merchandise and other be taken at least once in a year. However, where stock

recording is incomplete, then reliance will have to be placed on the year-end physical inventories to establish the

quantities of stock on hand for evaluation and inclusion in the annual accounts.

Before physical inventories are taken, the quantity balances according to the Accounts section stock record

cards must be agreed with the balances on the stores bin cards or storekeeper's bin cards and all differences

identified and adjusted in order to ensure that the bin card balances are correct for comparison with the physical

counts. Physical inventory taking must be properly organized and controlled, as follows, if accurate results are to be

obtained.

3.3.6 RECORDING FOR TRANSFER OF GOODS in Pharmid

Goods transferred to branches will be recorded via stock Transfer voucher issued in quantity and value on the stock

record cards. The stock transfer Voucher is completed with item code, item description, unit, quantity, unit cost,

total cost and remark columns. Stock transfer vouchers should be summarized monthly for recording the transfers in

the stock ledger accounts.

3.3.7 SALES in pharmid

Sales may be either cash sales, where payments is received prior to delivery of goods or credit sales, where goods

are delivered to customers but not due until an agreed time after delivery or invoicing.

Where sales are made both on credit and for cash it is important for cash it is important for management to be

informed of the respective values of credit and cash sale

3.3.8 Stock -valuation Methods of PharmidMerchandise and other financial inventory items will be valuated as follows:

a) Pharmaceutical, Instruments and medicinal supplies at moving average cost;

b) Stationary and other stock items at purchase cost; and recorded on the stock record cards during the course of the

financial year so that the year balance sheet purposes, no further valuation being necessary.

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Stock should be carefully scrutinized by management to ensure that all items are not expired. obsolete or held in e

excessive quantities with consequent risk of expiring then adequate provision must be made to reduce the cost of

such items to estimated net realizable value, the accounting entry beings; cost prices must be compared to selling

prices and the appropriate provisions established to reduce the value of any stock item whose cost price is in excess

of selling price as stock must be stated at the lower of cost.

Merchandise should be carefully reviewed by management to ensure that all stocks are salable at least at cost price

and that the quantities held are reasonable relative to normal market demand, adequate provision being made for all

deteriorated, old or show moving stocks to reduce them to realizable value.

This chapter deals with the analysis and interpretation of data collected through interview analyze the data and then

state the finding that the present study come up with

Interviewees were asked to suggest ideas that improve the utilization of proper inventory control system in the

future.

3.3.9 Data Interpretation

In order to gather relevant data about control over inventory. The researcher interviewed ten selective

employees from different departments of PHARMID. Such as:

-from general accounts division:-division head

-from general accounts section: - section head

-from internal audit service: - senior & junior auditors

-from sales & distribution division:-store keepers

Purchase

Question No. 1. Does PHARMID follow proper purchase procedure? Explain.

For this question all the interviewees answer that ''yes'' there is proper purchase procedure. Because the

organization has purchase manual and separate purchase committee, and every purchase order is approved

by responsible person. As the respondents said the researcher also observed this fact while assessing the

organization manual & activities regarding to purchasing process.

Question No. 2. Does PHARMID Consider lead time at the time of ordering the items?

Most of the interviewees respond that the organization's manual considers lead-time but not fully

exercised. But it is appropriate for the organization.

Procedures

Question No 1 Is there clear polices procedures established by PHARMID?

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Almost all respondents similarly answered that the company /PHARMID/ has clear polices and

procedures regarding inventory and purchase procedures.

Question No 2. Are the procedures and polices efficient and effective?

All interviewees replied that, the policies and procedures are effective and efficient in

themselves.

Question No 3 How do you think if all manuals and procedures are applicable?

Most of the interviews agreed that 'almost all manuals and procedures are applicable

because of they are clear and understandable.

Receiving Voucher

Question No 1 Are goods received checked as to condition quantity and description? How?

They answered that "yes" goods received are checked by an authorized departments as to the

description of purchase order.

Question No2. Are pre - numbered goods receiving report prepared by store keepers for all

goods received? Give some explanation.

All of the interviews replied that "yes'' all the report produced by the store keepers are pre -

numbered.

Question No 3. Do you have a separate person to insect purchased goods and prepare

inspection report? Explain.

They respond that 'No' PHARMID has not a separate section and person, but the inspection of

goods are done by distribution department.

Inventory

Question No 1. Which inventory method applicable?

They assumed that other PHARMID used moving average inventory valuation method.

Question No 2. Which inventory system is applicable?

Half of the interviewees answer that periodic inventory system is used by PHARMID. And half

of them respond that 'perpetual'. Due to the nature of stocks held by the company, has an expiry

date; the FIFO system is widely used to prevent or minimize the cost of expiration.

Question No 3. Are perpetual stocks records are maintained for all stock?

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They answer that 'for all stock perpetual records are maintained and for the organization's

activity.

Question No 4. Are on stock difference reported to management? Why?

They responded to this question that 'yes', stock difference i.e. short and over are reported to

management for decision on the action to be taken during inventory count and as necessary.

There is no problem in reporting of the difference found during the inventory time.

Question No 5. To maintain effective control over stock, it is necessary to determine what

should be the maximum and minimum stock, then how do you compare?

For this question most of the interviewees replied that "PHARMID' does not use maximum and

minimum stock level for all items, but for some especially for essential drugs maximum and

minimum stock are set based on the consumption data'

Question No 6. Is there safety stock? Why?

They answered ''No'' PHARMID has not a safety stock. Because there is no sufficient store for

this purpose.

Question No.7. Is their carrying cost problem? How over comes this problem?

They answered that 'yes' to some extent warehouse cost is not an issue to PHARMID, but interest

on tied up of inventory is the major cost of the organization because its working capital is bank

overdraft.

Question No 8. Is the computer system properly applicable?

They respond to this question that 'Computer system is not fully applied at all level. The

organization uses manual system because there is no in-house developed or off-shelf system;

while this research conducted the company was processing to computerize its activities.

Question No 9. What is the major problem associated with control over inventories?

They answered that - trained personnel

- Warehouse space, facilities

- transportation problem

3.3.10 Summary of findings

1. PHARMID as merchandise business it needs adequate store in terms of space and

facilities that requires handling the items in standard form.

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But PHARMID does not have efficient and facilitated store rooms.

2. In orders to control the unusual demand and out of stock problem it is necessary to use

economic order quantity but PHARMID doesn't use EOQ to determine the stock level

that satisfies the demand.

3. Pharmaceutical and medical supplies are required to inspect before they are ready to

distribute to the customer. This need qualified and authorized people but PHARMID has

not organized. Quality control department and separate person to inspect the purchased

goods.

4. The purchase manual indicates a clear lead-time for all stock purchased but in practice

this is not applicable this leads to out of stock.

5. Certain stock items are kept for a long period time due to obsolescence. As result the

company is incurring unnecessary carrying costs.

Chapter 4

4. Conclusion and recommendation

4.1Conclusion

The firm's inventory is classified in to Pharmaceutical, medical supplies, chemical,

diagnostics, medical Instruments, and narcotics etc.

PHARMID does not have sufficient and enough storerooms to carry out these

responsibilities. Every merchandising business especially relates to health services

need to prepare clear comfortable warehouse space, etc.

To indicate & over come problems in the processing of effective control over stock, it

is important to determine what should be the maximum and minimum stock but the

organization is not seriously applying it.

Each merchandises are requires inspection before ready to distribute for customers.

But the quality control Lead time is used to estimate a period from requisition up to

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the merchandise received; however, the lead time set by PHARMID is mostly not

practiced.

But it is an appropriate for the organization activity.

A certain item is kept for a long period of time due to obsolescence or it might be due

to purchasing problem. This results in capital tied up, increases warehouse cost and

interest charge for the bank over draft.

PHARMID used moving average for inventory valuation method. For sales purpose

they sale items with short expire date first. Then even if the usual working process

continued the next near expiry items selected for precaution.

In this organization for every merchandise items there is a separate stock card and Bin

cards. The stock cad for each item indicates the description, quantity and price. But

the bin card doesn't show price of the item. Every movements of items are recorded

when purchase/and or sales are made. These two cards are reconciled every quarter.

So, this indicates that PHARMID uses perpetual inventory system.

4.2 Recommendation

As the research paper on title control over inventory of PHARMID, indicates that the

organization has a good inventory control system but there are some weakness regarding to

store, inspection of goods, lead time and others. So, the researcher recommend on the

following points.

1. PHARMID as a merchandise business, it has not adequate (in terms of space) and

facilities store. This creates more defect items. This problem has an effect on the

organization profitability. So, in order to maximize its profit keep the items in standard

from and reduce detect items the organization should have to prepare standardized and

facilitated store.

2. Economic order quantity (EOQ) which is appropriate & essential method to prevent out

of stock and to maintain the maximum and minimum stock level. Even so, the

organization inventory manual indicates the level of maximum, minimum stock level and

amount that should have maintained as safety stock. It is not applied in practice. In order

to prevent out of stock and fulfill unusual demands, the organization should have to

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follow a method to determine amounts of maximum, minimum and safety stock level and

applying it strictly.

3. Because of the nature of Pharmaceutical, medical supplies and medical instrument. They

need special care and inspection regarding their content and quality. This inspection need

highly qualified person and well organized quality control department. In order to

achieve this pool, PHARMID should have to establish organized quality control

department with highly specialized employees.

4. Due to in appropriate lead-time, the organization incurs additional cost, reduce sales

volume, increase slow moving and expired items. To prevent these problems the

organization should have to determine the appropriate lead-time from each purchases

goods based on study.

5. Slow moving items those medicines held for seasonal diseases have an effect on sales

volume. This slow moving item may result from low demand and/or purchasing problem.

To minimize slow moving items and increase sales volume, the organization should have

to:

a) Prepare demand forecast based on accurate information gathering by some

research.

b) Promote the selected slow moving items to customers.

c) Reduce selling price up to cost.

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BIBLIGRAPHY

1. A.N. Mosich, 1989 Intermediate accounting

2. Contemporary auditing for students

3. C.Rollin Niswongero and philipe fess, CPA, 1993 accounting principles

4. C.T. Hurngren W.T Harrison L.S Bamber, 1999 Accounting

5. Eugene F.Brigham; 2004 Fundamental of financial management

6. Http: // WWW,ia.edu/Asset/internal control Guide .pdf.

7. Jan R.williams,2005 Financial managerial accounting

8. J.P saxenn, 2003 ware house management inventory control

9. O.R Whittington K.pally W.B Meigs. R.Fags,1992 principle of auditing

10. R.Doyal, P.Zachariah K.Rajapal, 1996 Inventory credit management

11. Stanley B.Block, Geoffrey A. Hirt, 1978 foundation of financial managerial Stanley

12. Thomas R.D Man R.E Dukes, C.J Davis, 1998 Intermediate accounting

13. William C. Boynton, Walter G.Kell, 11996 Modern auditing

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Addis Ababa University

Business Education Department

Structured Interview

Objective

The aim of this interview is to seek & propose or recommend solutions for problems

encountered in the organization of is together data and information for search work on control

over inventory of PHARMID and only.

PART I

Personal profile of the interview

Name ------------------

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Age --------------------

Sex -------------------

Education Back ground ----------------------

Work position --------------------------

Work experience --------------------------

The aim of this interview to seek & propose or recommend solutions for problems

encountered in the organization of is together data and information for search work on control

over inventory of PHARMID and only.

Dear Participants

Thank you for agreeing to participate in my undergraduate research study .The overall purpose

of this study is to asses the internal control over inventory in case of PHARMID. Your

participation in this study is completely voluntary & your responses will remain confidential.

Your cooperation & genuine answers are of a great value.

PART II

1. Haw goods received cheeked to condition and as to quantity and description with the

appropriate? Purchase order before being taken in to stock?

Brief -------------------------------------------------

2. Are pre - numbered goods receiving reports prepared by the stock kipper for all goods

received?

Purpose ----------------------------------------------------------------------------------------------

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3. Are all receiving goods keeping their nature?

How ----------------------------------------------------------------------------------------------

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4. Is there clear policy and procedure established by PHARMID?

IF there is, how do you apply it?

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5. How the procedures and polices effective and efficient?

Brief ------------------------------------------------------------------------------------------------

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6. Do you think all manual and procedures are applicable?

How -------------------------------------------------------------------------------------------------

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7. Is there any inventory limits in the policies and procedure?

Briefs -------------------------------------------------------------------------------------------------

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8. Does PHARMID follow proper purchase procedure?

Brief --------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------

a)

How?----------------------------------------------------------------------------------------------------

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9. To maintain effective control over stock, it is necessary to determine what should be the

maximum and minimum stock, then how do you compare?

Brief ---------------------------------------------------------------------------------------------------

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--------------------------------------------------------------------------------------------------

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10. Is there carrying cost problem? Like tied up in inventory, interest on funds and the cost of

warehouse space?

Brief -----------------------------------------------------------------------------------------------------

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11. How to control /Evaluation efficiency and effectiveness?

Brief ----------------------------------------------------------------------------------------------------

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12. Do you have a person to inspect the purchased goods and prepare inspection notes?

Brief -----------------------------------------------------------------------------------------------------

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13. Which inventory method applicable?

a. Last in first out (LIFO)

b. First in first out (FIFO)

c. Weighted average

d. Others

e. Why it is used?

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f. What problems arise by using this method? ----------------------------------------------

a)

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------------------------------------------------------------------------------------------------b)

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14. Which inventory system is applicable? Periodic or perpetual?

Why ----------------------------------------------------------------------------------------------------

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15. Are perpetual stocks records maintained for all stocks?

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16 Are cut - off procedures an adequate to insure that?

Advantage --------------------------------------------------------------------------------------------

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17. Are procedures for identifying and reporting and reporting slow moving quality? Defect,

obsolete or damaged items adequate?

Brief --------------------------------------------------------------------------------------------------

Why --------------------------------------------------------------------------------------------------

18. Are on stock differences reported to management?

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a) How?

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b) What is the problem in reporting?

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19. Is there safety stock? For what purpose -----------------------------------------------------------

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20. Do you have separate place for each category of inventory in the store? How?

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21. Is the computer system properly applicable?

a) Which software?

b) Why?

c) Its help?

d) What are its limitations

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22. Does PHARMID consider lead - time at the time of ordering the items?

Brief ----------------------------------------------------------------------------------------------------

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23. What is the major problem associated with control over inventories?

Brief ---------------------------------------------------------------------------------------------

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