Inventory Management

Sanofi-aventis uses sales forecasting applications to determine inventory demands and master production schedules. They utilize the periodic review system for their finished goods where intervals are fixed, but drug quantities vary according to need. Sanofi-aventis defines a maximum quantity for each drug and periodically checks inventory levels, ordering just enough from their manufacturing plant to reach the maximum target inventory level while achieving a 100% service level. A periodical review system is an optional solution for the pharmaceutical industry due to the shelf life of the drugs being manufactured. Demands can change on the basis of customer orders or when the need for a product increases such as allergy medication or anti-viral vaccines. Sanofi-aventis maintains an up-to-date inventory system that provides real-time brand inventory levels.

Sanofi-aventis is also required to perform physical inventory counts on a regular basis. It manages its physical inventory by sorting it into five categories, which are as follows:

1) ST-01 – Inventories - Raw materials excluding spare parts
2) ST-02 – Inventories – Work in Progress (WIP)
3) ST-03 – Inventories – Finished Goods Excluding Samples
4) ST-04 – Inventories – Samples
5) ST-05 – Inventories – Spare Parts

The raw materials, WIP, and finished goods are recorded differently than samples and spare parts. First a “cost” is assigned, which consists of the cost of purchase less any discounts and including duties, taxes, shipping and handling. Cost does not take into account loss or gain as a result of currency conversion. Then, what sanofi-aventis refers to as a “Net Realizable Value (NRV)” is assigned which is the estimated selling price minus any processing costs and sales expenses. Finally the “cost” minus the “NRV” equals the “impairment”, which is recorded for each category in the inventory and is used in conjunction with the profit and loss of sanofi-aventis.

Physical inventories are performed using a method known as blind counting. The counting sheets used by the persons in charge of counting should not mention the theoretical quantities in stock. In addition, those counting should not have direct access to the inventory management system during or immediately prior to the physical inventory process taking place. This ensures a true physical inventory count.

A physical inventory is taken at least once per year, sometimes more often. Occasionally products become obsolete or un-saleable and are marked as such by reducing the NRV to zero through financial depreciation. Once the physical inventory is counted, entered into the system and posted, those numbers are recorded as the beginning inventory and will be adjusted on the next scheduled physical count.