Finance

RANBAXY LABS LTD.
PROJECT REPORT
On
“WORKING CAPITAL MANAGEMENT”
CONTRACT MANUFACTURING
At
RANBAXY LABORATORIES LIMITED
(MOHALI)
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF
MASTERS OF BUSINESS ADMINISTRATION (MBA)

BATCH (2006-2008)
ANANTA INSTITUTE OF BUSINESS , SAGIRATHI NAGAR

NEW DELHI
SUBMITTED BY: -
ARVIND MITTAL
MATA GUJRI COLLEGE, FATEHGARH SAHIB 1

RANBAXY LABS LTD.
CONTENTS
S. No.
1. Preface
2. Acknowledgement
3. Methodology
4. History of Pharmaceutical Companies
5. Company Profile Ranbaxy
6. Information flow in relation to finance
7. Introduction to Outsourcing
8. Outsourcing in Ranbaxy
9. Analysis of Growth vs. Investment
10. Vendor selection
11. Role of production department in contract manufacturing
12. Quality control
13. Controls by Finance department
14. Introduction to Working Capital management
15. Cash and Inventory Management
16. Holding Inventory
17. Standard Costing and Analysis of Variance
18. Cash lock in system and Inventory holding days
19. Recommendations
20. SWOT Analysis
21. Conclusion

RANBAXY LABS LTD.
PREFACE
Management is a vital function concerned with all the aspects of an enterprise and
hence a course in business administration has become a sort of prerequisite for a successful
career in today’s dynamic business environment Theories on management aim at establishing
the best way of doing things undyingly, the situational needs determine their mode of
application. Effective Management is always a situational management. So a student
undergoing a postgraduate program in management needs to be exposed to realities in the
field, which puts to test the classroom learning.
The project reports relate to the need of outsourcing and then analyzing the working
capital management at outsources locations in Ranbaxy laboratories limited. The field of
finance management has undergone many changes and the management requires elaborate
financial data of the growth and development of any company. Therefore the presentation of
proper account has become for the further growth and diversification of the company.
To sum up, in this humble exercise and effort has been made to learn about the
working capital at outsource locations of a reputed and esteemed pharmaceutical company.

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ACKNOWLEDGEMENT
Exchange of ideas generates energy and a will to work in a better way. Whenever
others help a person he is bound to pay gratitude to them. Acknowledgement is not
merely a formality, rather an expression of deep gratitude.
I take opportunity to express my sincere gratitude and thanks to all those who helped
me in various ways in the successful completion of my project report.
I owe my sincere thanks to Mr. Sandeep Kohli (General Manager, Finance) for
allowing me to work as a trainee in Ranbaxy laboratories Ltd.
It is a privilege to record my heart felt gratitude to my esteemed guide Mr. vinod

sharma (Manager, Finance) I shall remain indebted to him for his able and mature guidance
and whole hearted cooperation .I wish to thank him for his consistent moral support and the
assistance he regularly provided me.
I am extremely grateful to Mr Bharat Bhushan, Mr.Desrah, Mr Manoj, Mr Shiva Mr

Anand and all the members of Accounts Department for their solicited and selfless help.
I express my cordial thanks to Mr. Abhay kapoor (HR, Training manager) for his
selfless help and guidance on many occasions.
I owe my thanks to my beloved family and friends for their consistent moral support.
I feel immense pleasure to thank Mrs Kashmir Singh (Director, mgc) and Mr. Jagdeep
Singh and all my teachers and classmates at mgc, for their consistent encouragement without
whom this project would have been impossible.
SHWETA BHATIA

RANBAXY LABS LTD.
METHODOLOGY
The methodology adopted for the study was:
• Familiarization, examination and evaluation of the procedures relating to

preparation of working capital sheets and from DRC.
• Collection of relevant data from the company records and cross checking of this
data.
• Calculations of parameters and norms, as also their financial implications.
Broadly the data were collected for the report on the project work has been through the
primary and secondary sources.
The primary data is collected by various approaches so as to give a precise, accurate,

realistic and relevant data. The main goal in the mind while gathering primary data was
investigation and observation. The ends were thus achieved by a direct approach and
personal observation from the officials of the company; heads were thus achieved by a
direct approach and personal investigation from the officials of the company. The other
staff members and the employees were interviewed for the sake of maintaining reasonable
standard of accuracy.
The secondary data as it has always been important for the completion of any report
provides a reliable, suitable equate and specific knowledge. The Standard cost reports, DRC
reports, working sheets provide the knowledge and information regarding the relevant
subjects.
The valuable cooperation and continued support extended by the associates, head of
the department, division and staff members contributed a lot to fulfill the requirement in the
collection of data in order to present a complete report on the project work.

RANBAXY LABS LTD.
INTRODUCTION
Pharmaceutical are high technology, high value added products and are highly traded in
International markets. The pharmaceutical industry satisfies a basic human need of health,
the Demand for products is on increase. This industry is passing through one of its more
dynamic Times due to the ever changing demands of the market and the enormous changes
taking place as regards to the size and constituents of the industry as many industries are
more concentrating Their focus on manufacturing of generic drugs which increases their
profits without incurring any operational costs. Introduction to generic products Ranbaxy.
Leading companies in the Indian pharmaceutical market, both domestic and multinational
outsource significant portion of their production :
 To save on Excise Duty

 To reduce their Manufacturing costs , in form of Raw-material cost or Overheads.

RANBAXY LABS LTD.
HISTORY
The Indian pharmaceutical industry dates back to the fifties, when the import and marketing
of the various medical formulations first started. At the onset, Multi national companies
were the only route for the manufacture of Formulations and the Indian Pharmaceutical
industry was still nascent. Later, to protect the interest of Domestic Industry, the
government imposed restriction on the import and marketing of various medical
formulations. This led to setting up of facilities in India.
The leading 250 pharmaceutical companies control over 70 percent of the market with
market leader is having share of around 7% over 60% of India’s bulk drug production is
exported and the balance is sold locally to the formulators. With more than 85% percent of
formulation production in the country is sold in the domestic market.
India is one of the top manufacturers of bulk drugs in the world and is among the top 20
pharmaceuticals exporters in the world. the industry manufactures almost the entire range of
therapeutic products and is capable of producing raw materials for manufacturing a wide range of
bulk drugs from the basic stage.
The government has taken measures to give impetus to domestic production of drugs
and Formulation, creating an environment conductive for canalizing new investments into
the pharmaceutical sector. However the industry and experts feel that time has come for
government to announce new policy initiatives, particularly relating to the research and
development and pricing regime ,in order to propel the industry into a new growth orbit as well as
the challenges of WTO led trading system and TRIPS driven product patent environment. The
Indian Pharmaceutical Industry comprises both MNCS as well as Domestic companies.
While at one time, MNCS dominated the market; their market share has declined
steadily from 75% in 1971 to about 35% . In order to boost the Domestic industry the
Government Introduces prices patents in the Indian Patent Act of 1970. Domestic Pharma
companies were quick to take advantage of this and developed expertise in process
development and manufacturing of Pharmaceuticals. As a result Domestic Companies had

RANBAXY LABS LTD.
a robust pipeline of products, large therapeutic width and depth were able to provide
masses with low priced quality pharmaceuticals.
GOVERNMENT POLICIES AFFECTING THE INDUSTRY
 Signing of GATT ,which is passed by the parliament, India is required to amend the
patent law ,to include product patent forcing Indian companies from the basic research or
take license from there patent holder for production of new drug.
 Drug Price Control Order DPCO) is the drug policy of the government which is
revised from time to time. The basic objective of the drug policy is to regulate the prices of
drugs that are essential, so that those drugs can be available to the masses at affordable
prices.
 Subsidies in industry inputs and relief provided to companies regarding tax

payments.
 Excise duties, custom duties etc. go a long way in promoting the industry.
 Introduction of value added tax would provide a further transparency .

RANBAXY LABS LTD.
NATIONAL PHARMACEUTICAL INDUSTRY (NPA)
NOW the work of (DPCO) is done by a separate department NPA, which has been
created to impart more transparency to the pricing of Bulk Drugs and Pharmaceutical .
Parameters used by the NPA to fix the prices of particular products are :
[ Custom duty payable

[ Corporate tax
[ Process loss of raw materials
[ MAPE (maximum allowable post expenses).
THE IMPACT OF DPCO
The DPCO had both positive and negative effects on the working and growth of Pharma
Industry .Over last 3 decades. The positive effects of the DPCO are, it enabled in restricting the
prices of various drugs, in fact the drug prices are the lowest among the third world countries.
Prices in India are 1/6 the global prices average. The DPCO enabled our health care cost to be
minimum among developing countries.
EXPORTS/IMPORTS
India is almost 95% self reliant in bulk drug sector. In spite of being well developed in
pharmaceutical industry, we continue to import not only Intermediates and Chemicals
required by the Bulk Drugs industry, but also some of the Bulk Drugs and even some
specialty Formulations. Looking to the results of leading companies like Ranbaxy, Ciplaetc.
It is Apparent that bulk of their growth has come from exports. 85%

RANBAXY LABS LTD.
ASPECT OF HAVING IMPACT ON THE PHARMACEUTICAL INDUSTRY POST

2007 REGIME
The manufacturing technology forms the backbone of not only the primary process
involving the production of various drugs from the raw materials and the intermediates, but
also the secondary process involving the conversion of bulk drug into the formulations.
Formulations with the new delivery system or a highly specialized system like the
multi cell multi layer microdylasis cell technology or timed release etc. are highly
technology intensive. In the years to come this technology component is certainly going to
be the driving force in the pharmaceutical industry.
In post 2007 era also technological component is expected to play a vital role in terms
of delivering the drugs at the exact site in the human body, thus to potent their action with
the least of the adverse effects. Technology has played a significant role in improving the
patents compliance. It is certainly expected to do so in future.

RANBAXY LABS LTD.
INTRODUCTION TO RANBAXY
COMPANY PROFILE
“ A company empowered by one mission –to place itself on the world map. An
enterprise propelled by one force-that synergizes its energies to charter unexplored
markets. Organizations fuelled by one dream-to transform competition into opportunity.”
Ranbaxy Laboratories Ltd. was incorporated in June 1961, in the name of M/S
LEPITIT RANBAXY LABORATORIES LTD and it commenced its business in MARCH
1962, in technical and financial collaboration with an international company named
LEPTIT SPA, MILAN, ITALY. Ranbaxy Laboratories Pvt. Ltd. merged with “Leptit
Ranbaxy Laboratories Pvt. Ltd.” in 1962 Ranbaxy and company also merged with this
company in 1966. The collaboration arrangement with M/S LEPTIT was terminated in
1966; after which Indian nationals acquired the entire share capital of the company and the
word Leptit was removed from the name of the company.
Therefore the word Leptit was removed from the name of the company. Therefore the
name is known as RANBAXY LABORATORIES LIMITED. In 1973 the company issued
shares to the general public and became a full fledged PUBLIC LIMITED COMPANY.
Today, Ranbaxy has emerged as a Leading Pharmaceutical Company on the Indian

firmament, with the second largest market share and enjoys an enviable reputation
for its high standard of ethics and quality around its core strength of anti-infective, it
has produced new brands in emerging therapeutic areas like cardiovascular, central
nervous system and nutritional. supporting this expansion, the company has invested
in world class manufacturing infrastructure that leverages India’s comparative cost
advantage and skilled manpower, while delivering international quality. The
company’s drive for Internationalism is guided by the well planned brand strategy
that covers some of the world emerging markets like China, cis, Central Europe and
Latin America . Its position today is in league of the Top Ten Pharmaceutical
companies of three world an decent ranking as the eleventh largest company in the
international generics space is the resounding endorsement of its strategic mind.

RANBAXY LABS LTD.
It is clear that for a long time, the dominant share of revenues of the company would
continue to come from the ever expanding global generics market. Hence the intent of
Ranbaxy mission is to achieve a sustained growth rate through the continuous pursuit of
innovation phase one trials for pervasion, a compound for treating prosthetic males have
been completed. Phase 1 trials with clafrinast, an asthma compound is an important step
towards research based value creation. This company also had success with Ciprofloxacin,
an ingenious form, created through the novel drug delivery systems research. As the
demand of the bulk drugs inside the country and abroad was increasingly rapidly a new,
plant was set up at Toansa near Ropar in 1987. This was a higher capacity plant designed to
cater to the present and future needs, initially antibiotics like Ampicillin, Trihydrate and
Doxycycline were manufactured. Later, on the other drugs like Cephalexin monohydrate
and Ranitidine were also prepared. The plant at Toansa was designed to meet the stringent
standards set by the Food and Drug Administration (FDA) of U.S.A. This plant has been
approved by FDA and this will open up American and other newer markets for Ranbaxy’s
products.
At present Ranbaxy have four plants for the manufacture of bulk drugs two at Mohali,
one at Dewas (M.P) AND Another at Toansa near ROPAR. At present , Ranbaxy is the
second most Indian company engaged in the manufacturing of Pharmaceuticals, Bulk
Drugs and Fine Chemicals. RANBAXY’s vast range of highly pure laboratory reagent and
chemicals enjoy a place of pride in the market. IT trends, has rebuilt As a step towards
leveraging information for value creation using its information backbone around an ERP
application, along the focus on reengineering several business processes around the internet
and has putting place business solutions that challenge existing ways of doing Business.
The undying spirit of the company’s human assets and their intensive competitive and
entrepreneurial energy has played a great part in transforming the company into a
multicultural and multiracial team. Today, Ranbaxy is the largest exporter accounting for
12% of the industry exports pharmaceutical substance and dosages forms to over 50
countries with the internationals sales comprising of 45% of the total turnover.

RANBAXY LABS LTD.
VISION GARUDA
During the year 2002, the company has evolved a10-year vision till 2012, for
sustaining Significant growth consistent with its mission to be an international research
based Pharmaceutical Company, under the rubric ‘Vision Garuda,’ with increasing
emphasis on Novel Drug Delivery Systems Research [DDR].In licensing and out licensing,
relationship with other important pharmaceutical entities, expansion of manufacturing
facilities both in India and strategic overseas locations, revamping of organizational
structures to cater to the wider and more dispersed span of operations, and streamlining and
standardizing the business processes through out the global organization are other areas that
receive focus and attention of management on priority.
GARUDA STANDS FOR –G-ALVANISE ASPIRATIONS FOR

THE RANBAXY UNCEASING GROWTH IN THE DECADE AHEAD.

RANBAXY LABS LTD.
MISSION
TO BECOME A RESEARCH BASED INTERNATION PHARMACEUTICAL COMPANY

VALUES OF RANBAXY LABORATORIES LIMITED
1. Achieving customer satisfaction is fundamental to their business.

2. Practice dignity and equity in relationships and provide opportunities for people to
realize their full potential.
3. Ensure profitable growth and enhance wealth of shareholders.
4. Foster mutually beneficial relationships with al their business partners.
5. Manage their operations with concern for safety environment.
6. Be a responsible corporate.

RANBAXY LABS LTD.
OBJECTIVES
1. To be a leader in the pharmaceutical industry.

2. To be a profitable company with a steady growth in earnings.
3. To set an example as a socially responsible company.
4. To diversify in health care related areas.
5. To strive for excellence and continuous improvement in all spheres.
6. To improve the quality of life of people by providing better services and quality
products.
7. To provide a harmonious environment at the work place this helps in developing the
Potential of the employees.

RANBAXY LABS LTD.
VARIOUS DIVISIONS OF RANBAXY LABORATORIES LIMITED.
1. CHEMICAL DIVISION
2. DIAGNOSTIC DIVISION
3. STAN CARE DIVISION
4. CONSUMER HEALTH CARE DIVISION
5. INTERNATIONAL DIVISION
6. PHARMACEUTICAL DIVISION
7. ETHICAL DIVISION
8. API DIVISION
9. ANIMAL HEALTH CARE DIVISION
10. PROJECTS
DIVISIONS IN VARIOUS GEOGRAPHICAL AREAS
INDIA AND MIDDLE EAST

EUROPE, CIS AND AFRICA
ASIA PACIFIC
NORTH AND SOUTH AMERICA

RANBAXY LABS LTD.
JOINT VENTURES
NIGERIA RANBAXY {NIGERIA} LIMITED
THAILAND UNICHEM PHARMACEUTICALS.LTD.,UNICHEM

DISTRIBUTORS LTD,RANBAXY (THAILAND)CO.LTD
.
MALAYSIA RANBAXY (MALAYSIA)SDN.BHD.
INDIA VIDYUT INVESTMENTS LTD.,RANBAXY FINE

CHEMICALS LTD.,
REXCEL PHARMACEUTICALS LTD.,SOLUS

PHARMACEUTICALS LTD.,
SPECIALITY RANBAXYLTD.,
VORIN LABORATORIES LTD.,
CHINA RANBAXY (GUANGZHOU CHINA) LIMITED
GERMANY BASICS GmbH.
HONG KONG RANBAXYPHARMACEUTICALS B.V.
U.S.A OHM LABORATORIES, RANBAXY PHARMACEUTICALS

LTD.,
RANBAXY SCHEIN PHARMA,LLC

RANBAXY LABS LTD.
NETHERLANDS RANBAXY (NEITHERLANDS) LIMITED
U.K. RANBAXY (U.K.) LIMITED
IRELAND RANBAXY IRELAND LIMITED
PANAMA RANBAXY PANAMA SA
POLAND RANBAXY POLAND Sp. Zo.o
SOUTH AFRICA RANBAXY (SA) PTY LIMITED
EGYPT RANBAXY (EGYPT) LIMITED

RANBAXY LABS LTD.
DRUGS MANUFACTURED AT
a) MOHALI-1 Plant :
6-APA
CLARITROMYCIN
ESOMEPRAZOL
CITALOPRAM(I)
IMIPENAM
SERTRALINE
PENTAZOCINE
RAMIPRIL
TAMSULOSIN
VOGLIBOSE
ATORVASTATIN
CELIPROLOL
CILASTATIN
PIOGLITAZONE
FEROPENAM
ROSUVASTATIN
CEFUROXIME AXETIL
FLUCLOXACILLIN
TOLTERODINE
TAMSULOSIN
IN ADDITION TO THE ABOVE DRUGS, A NUMBER OF LABORATORY

CHEMICALS ARE ALSO MANUFACTURED AT MOHALI WHICH ARE MAINLY
USED BY THE INSTITUTION FOR RESEARCH AND DEVELOPMENT WORK.

RANBAXY LABS LTD.
b) MOHALI Plant II :
7-ADCA NORMAL &(US)

7ACCA NORMAL
CEFPODOXIME PROXETIL (I)
CEFPODOXIME PROXETIL (NI)US
CEFACLOR (NORMAL,TNG,US)
CEPHALEXIN US
CEPHALEXIN NORMAL
CEPHRADINE
CEFUROXIME AXETIL
c) TOANSA Plant :
FEXOFENADINE
FOSINOPRIL
ISOTRETENOIN
LISINOPRIL
LORATIDINE
MIDAZOLAM
OFLOXACIN
GALANTAMINE Hbr
SIMVASTATIN
RANITIDINE
PENTAZOCINE HCL
AMOXYCILLIN
CEPHALEXIN
CEFADROXYL
CANDESARTAN
CHLORAZEPATE
ACITRETIN
BENAZAPRIL
QUINAPRIL

RANBAXY LABS LTD.
d) DEWAS PLANT
CIPROFLOXACIN
ACYCLOVIR
GABAPENTIN
CLARITHROMYCIN (US PROCESS)
CITALOPRAM (NI) US
GANCYCLOVIR
SIMVASTATIN
ETODOLAC
ACYCLOVIR

RANBAXY LABS LTD.
BRIEF INTRODUCTION OF RANBAXY PLANT IN PUNJAB
In the chemical division, various bulk drugs are manufactured. The chemical division
has three units in Punjab. One is located at Toansa two are located at Mohali and one unit is
located at Dewas near Indore in Madhya Pradesh, where Ciprofloxacin is manufactured. In
the plant of chemical division, various drugs like antibiotics, anti-malarial, anti bacterial
and anti ulcer are manufactured.
Two plants at Mohali are generally known as Mohali-1 and Mohali –II.. The Mohali-1
plant started functioning in 1974 Toansa plant started functioning in 1987, the Mohali-II
plant started functioning in 1991and Dewas plant started functioning in 1991.Various plant
heads independently manage all these plants. In each unit, separate facilities with respect to
the manufacture of drugs, along with their manufacturing areas have been provided. This is
required to reduce the chance of any cross contamination under the drug laws and to
comply with good manufacturing practices.
MOHALI-I
Mohali-1 plant is an old plant and most of the drugs were first introduced here for
commercial production, before shifting them to other locations with better facilities from
FDA point of view. This plant is so designed that the title modification of different drugs
can be manufactured the plant basically deals mostly with the manufacturing of ACTIVE
PHARMACEUTICAL INGRIDIENTS (API). This plant is divided into plant areas A10 &
A11.
MOHALI II
At MOHALI –II PLANTS, separate Blocks have been divided for the preparation of
each drug .The Toansa, Mohali-II and Dewas plants are planned in such a way that their
system, facilities, manufacturing practices and standards meet the requirements OF FDA
.MOHALI-II plant also mainly in the manufacturing of active pharmaceutical ingredients
(API).The plant is divided into two plant areas A8 and A9.

RANBAXY LABS LTD.
MARKET SYNERGY
IN a constantly evolving industry, Ranbaxy’s aggressive marketing skill and well

planned, far sighted strategies have helped in to maintain therapeutic areas in markets across
the world.
The synergy of the entire company is focused on the development and timely launch
of new generation products relevant to the disease profile of the market ,where cross section
team from R&D ,production, and marketing, work jointly to study the requirement of every
market and ensure individual attention.
This has enabled Ranbaxy to successfully launch establish its product internationally
and consolidate its market share in India to become the largest company in the
pharmaceutical company
Considering the dynamics of modern medicine, their medical services department has
ongoing programs to upgrade the knowledge of the sales teams and help them to disseminate
the latest information on their product and their therapeutic efficacy.
Ranbaxy operates in INDIA through its seven marketing arms such as:
 Pharma
 Stancare
 Croslands
 Rexcel
 Solus
 Rextar
 Blue R
 Ranbay CV
 Super speciality

RANBAXY LABS LTD.
TODAY MARKETING REMAINS RANBAXY’S GREATEST STRENGTH.
DIAGNOSTICS
The diagnostics division has aggressively focused on market expansion activities
based on a strategy of reliability ,quality products and efficient service. During the year
2002, the diagnostics division identified two key areas for the business growth customer
needs and service with focus on product groups.
The division restructured its business into three strategic business

units(SBU),Chemistry and hematology,immuno-diagnostics and channel partners. The
restructuring resulted in increased sales and customer satisfaction and growth in all three
segments.
The chemistry and hematology segment saw continued success in the fully automated
chemistry segment, with an increase in the number of dimension segments grew by 26% in
2002 as compared to a market growth of 10% during the same period.
Ranbaxy diagnostics explored the global diagnostics scenario to identify three niche products
for semen analysis, parastology and autoimmune diseases respectively.

RANBAXY LABS LTD.
MANUFACTURING
An organization capabilities and intents are strongly reflected in the product it

manufacture. In other words, the manufacturing competencies and the facilities echo truly,
the R&D extent and the ability to implement it for the best of the market it targets.
Ranbaxy’s manufacturing strengths have established it as a producer of the world-

class generics, branded generics and a major supplier of its range of Active Pharmaceutical
Ingredients(API).
Ranbaxy has world-class manufacturing facilities in seven countries namely CHINA,

IRELAND, INDIA, MALAYSIA, NIGERIA,USA AND VIETNAM. Its overseas facilities
are designed to cater to the requirements of the local regulatory bodies of that country while
the Indian facilities meet the requirements of all the international regulatory agencies.
Some of the agencies such as MCA-UK, MCC-South Africa, FDA-USA and TGA Australia
have audited and approved Ranbaxy’s manufacturing facilities for the compliance with
international GOOD MANUFACTURING PRSCTICES and have registered its products for
safety, quality and efficacy.

RANBAXY LABS LTD.
ERP
Enterprise resource planning is a system method of dynamically balancing and

optimizing the resources of a company. when used effectively it can enable a company to
achieve world class results in growth, profitability and product and service development. it
works within the paradigm that every business is uniquely similar.
An ERP system in a company is a software solution that addresses the enterprise

needs taking the process view of an organization to meet the organizational goal tightly
integrating all function of an enterprise.
RANBAXY is an ERP organization which uses the sap software system in their
organization. Ranbaxy has adopted SAP R/3 version in the organization .System application
product is a product of GERMANY which helps in data processing.
In this software there are various modules which deal with different business
activities.
Why company needs a ERP system?
In this world of competition, every organization wants a Growth for which they want more
accuracy, timely response , efficiency , accurate forecasting in their work. It provides better Project
Management & better customer service . ERP system is supposed to tackle Inventory problem ,
Cash Management , Customer Service , Material Shortage , Quality Problems etc;
Advantages for the Organization :
 Online / Real Time information throughout all the functional areas.

 Data Standardization & accuracy.

RANBAXY LABS LTD.
 Increases the Efficiencies of the Organization.
INFORMATION FLOW WITHIN VARIOUS DEPARTMENTS

(CONTRACT MANUFACTURING)
Quality R&D Stores

Department Department
Production
Department
Finance Department
Purchase
Department

RANBAXY LABS LTD.
INTRODUCTION OF OUTSOURCING:
Outsourcing is a rapidly expanding market in the pharmaceutical sector and

increasingly companies around the world are entrusting elements of their business
operations to outsource specialists.
VIEW
The previous business delivered ownership, depth and mystery. As new business
emerged it was essential during the transition period to learn how to be flexible and to
respond to customer and market demand. It does not need to be trade off. It is about
integrating the entrepreneurial culture, building in flexibility and being responsive to
customers.
CONTRACT MANUFACTURING BECOMES A STRATEGIC IMPERATIVE
Today outsourcing is a strategic imperative that can provide not only a cost alternative
but also improved efficiency by utilizing ,speed and flexibility. The Outsourcing paradigm
is not new in the industry: It has been utilized on a small decades; however expanding the
outsourcing model to include the outsourcing of what were considered essential in house
functions has turned a tactical maneuver into a strategic imperative.
Outsourcing is major trend. From Big Pharmaceutical companies to face with

challenges to emerging pharmaceutical companies who possesses nothing than intellectual
property, contract work in all phases of development is an increasingly important strategy
in the market place.

RANBAXY LABS LTD.
Factors governing outsourcing
1.OUTSOURCE NON CORE ELEMENTS

Many Large Pharmaceutical companies have consolidated. As a consequence the
desire to Outsource non core elements of their business such as packaging and contract
manufacturing has increased.
2.COMPETITON
Today increasingly competitive commercial environment has driven most companies
to optimize efficiencies.
3.SPECIALISED PRODUCTION
Manufacturing of small/complex products cannot be included in company’s core
competencies as these types of products require a GMP environment, specialized
equipment, and experienced personnel with a complex set of skills to manage and run these
facilities
4. SPEED TO MARKET
The challenges posed by the generic drugs and alternative therapies has increased
pressure on pharmaceutical companies to get as much value as possible out of their patents.
For this these companies have to bring drugs as soon as they are approved and have
adequate product facilities to serve largest possible market.
5. TECHNOLOGY
Outsourcing offers companies the flexibility of a variable cost structure, and provides
quick access to new process technology without making a capital investment in upgrading
in-house in house facilities. Using CMOS, drug companies can choose to make smaller
investments, and experiment with new technologies, prior to making a more significant
investment if the application is shown to have a promise.

RANBAXY LABS LTD.
6.MAXIMISE RETURN ON INVESTMENT

Large Pharmaceutical companies that are inclined to manufacture in house do so
primarily to maximize their return on investment in facilities and capital by operating at
near full capacity. However, because of the unpredictability of the drug development
pipeline ,sizing a plant to maintain maximum capacity and avoid idle capacity is
challenging.to reduce risk a growing number of drug companies divert some of their
manufacturing to (CMOS).Such partnering arrangements enable companies to handle
surges in capacity needs without typing up assets during slower periods.
IMPORTANCE OF SUCESS OF CONTRACT MANUFACTURING IN RELATION

TO INDIAN PHARMACEUTICAL COMPANIES
CONTRACT MANUFACTURING: GROWTH ENGINE FOR PHARMA

COMPANIES
Indian pharma companies have always been popular, especially in countries that
enforced stringent intellectual property rights. Bulk drugs and Formulations especially
those covered by patents from India have been a cheap alternative to many countries that
embraced process patents ,for the fear of rising healthier costs by way of expensive drugs
emerging from the western world. Over the years portfolio of drugs expanded and so did
the the scientific talent pool and their expertise in process chemistry and synthesizing
capabilities. between 1987-1988 and 1996-1997,pharmaceutical exports(bulk drugs and
formulations)from India increased 1700% to Rs40.9 billion from a mere Rs2.27billion.
That engine of growth will grind to halt by the year 2005, as India complies with
product patents. With or without alternative processes, India companies will not be able to
make and sell products patented by global prayers, unless they are licensed to do so with
licensing, the margins, the margins will not be as high as before-and it is likely that foreign
drug companies will prefer to make and cell their products on their own through
subsidiaries.

RANBAXY LABS LTD.
Outsourcing - A NEW OPPURTUNITY
Indian companies have found a new route growth-contract. This avenue ensure that
these companies will be able to leverage their manufacturing capabilities and expand
business in India and abroad. The big global pharmaceutical; companies have found that it
pays to outsource manufacturing and focus their own resources on research and marketing.
Hence the urge to contract the production of their products to those who can do the
job cheaper. CONTRACT MANUFACTURING also known as third party, or toll
manufacturing, is not entirely new activity for the Indian Pharma industry-but in the
opposite way. Most large Indian companies have been farming out production of bulk
(ACTIVES) and formulations to third parties (mainly small scale business) in order to
circumvent the rigid drug price control order. Now they are learning to make stuff for
others. Globally, the trend for outsourcing pharmaceutical products like bulk drugs, drug
intermediates, and formulations by multinational drug giants has gained ground for the past
decade. As companies shift focus to high-end value-added operations like marketing, they
are handing over the now not-so-lucrative manufacturing tasks to outsiders.
OUTSOURCING A BIG MARKET FOR PHARMACEUTICALS COMPANIES
In 1997, outsourcing by global pharmaceutical majors accounted for a staggering

$67bn. In 1998, this figure increased by 10% to $73bn. According to International Medical
Statistics, a Premier market research organization, half of the big pharmaceutical companies
worldwide have moved towards aggressive outsourcing through long terms strategic
alliances, while 9% of the companies out source moderately. Only 31% went for in-house
capacity expansion in the last two years to cater to growing demand. Some of the
companies that outsource aggressively are American Home Products. Bristol Myers Squibb,
GlaxoWellcome, Merck, Hoechst Marion Russell, Novartis, Pharmacia and Upjohn, and
SmithKline Beecham. Indian companies can tap those who do not have a local subsidiary.
Others, with an existing Indian presence, are using their local subsidiaries to do what they
find expensive to do at home. For example, Glaxo India is producing rantidine bulk for
Glaxo Wellcome Plc.

RANBAXY LABS LTD.
OUTSOURCING FOR PATENTED DRUGS –A LUCRATIVE MARKET.
Statistics show that of the 65’new chemical entities,’or NCEs, introduced between1994-98,
bulk requirements for 35 molecules were outsourced, averaging $60bn per year. Further,
according to IMS, there are 501 NCEs at various stages of development worldwide. Of
these 241 belong to companies that outsource aggressively. The development status of these
241 molecules indicates 82 in phase-one clinical trial,97 in phase 2, 48 in phase 3, and 10
in preregistration phase. If we assume, conservatively, that the outsourcing value for each
molecule is $500 million per year, we are talking of a whooping $120bn per year.
OPPORTUNITY
OUTSOURCING FOR PATENTED DRUGS IS A BIG MARKET :SO AS

OUTSOURCING FOR GENERICS
In US third party manufacturing accounts for $7 billion or over a fourth of the

$30billion sales of generic formulations. a “moderate shift of 30% of the remaining
75%from the in-house production to outsourcing has led to a big boom in contract
manufacturing to the tune of $8 billion which has resulted in simultaneous boom in Bulk
Drug Industry.
OUTSOURCING FOR GENERIC DRUGS MARKET
The Real Boost For Outsourcing Has Come From The Generics Market also. Markets for
generics is growing by 14% every year. A company can capture 60% to 80% of the market
whenever a company launch generic version of particular products. Hence Outsourcing in
generics will profiler ate whenever there is a generics boom. With improvement in quality
of generics formulations government in many countries are Encouraging generic substitutes
in place of patented drugs to cut down drastically on health care products.

RANBAXY LABS LTD.
IMPORTANCE TO MANUFACTURE API’S IN INDIA/

MANUFACTURES API IN INDIA
The overall perception among pharma pundits is that bulk drug manufacturing will
migrate from Western Europe and the USA to India and China due to their inherent
advantages, such as
1. LOW COST MANUFACTURING
2. EASY AVAILABILITY OF QUALIFIED FORCE
3. LAX ENVIRONMENT LAWS
FOR EXAMPLE
Decision of Smithkline Beecham consumer products ltd., the Indian Subsidiary of

Pharma Major Smithkline Beecham pie has set up a 5 Billion manufacturing unit at
Sonepat in Haryana is a live example to prove this Business.

RANBAXY LABS LTD.
ACTIVE PHARMA INGREDIENTS
RANBAXY’s API business over the years has grown consistently. In a macro environment
of extra ordinary competition and challenges, the API division has moved from strength to
strength. It supplies “world class API’S to leading generic companies in more than 50
countries, which give the API business a truly global complexion. The business today
contributes 12% of the global sales of the company. The focus being on the regulated
markets with Europe and USA being the mainstay of this business. Supplementing the
sales achieved in these territories is the excellent performance in CHINA, selected markets
of Asia, Far East and LATIN America.
The API division has in its portfolio over 50products covering a wide therapeutic range
such as cardio vasculars, anti infectives, anti ulcerants, anti diabetics, anti depressants, anti
virals and others.
The objective of this business is to provide total solutions to the customer with regard to the
API starting samples and trial quantities, right up to regulatory assistance required for the
registration and regulatory compliance.
RANBAXY’S API division is an ideal partner for APIs due to its
 GMP Culture
 FDA/MCA approved plants
 Good quality
 Regulatory and R&D support
 Robust pipeline
 Good therapeutic width
 Differentiated products providing early market entries
 IP related strengths-Well grounded Patent opinion
 Preemptive Capacity Planning
 Commitment through Long term contracts
 Speed to market
 Customer Orientation
RANBAXY LABS LTD.
Decision making is the most important function of any organization. Strategic

decision making is the prominent task of the senior management. While decision making
pertains to all managerial functions, strategic decision making largely relates to the
responsibilities of the senior management.
So, with the ongoing EXPANSION strategy followed in RANBAXY, EXPANSION

THROUGH INTEGRATION is followed in manufacturing of API’s. and that is why
contract manufacturing is done.
DECISION MAKING REGARDING CONTRACT MANUFACTURING
1.MAKE OR BUY DECISIONS
 Differential costing technique can be used to solve make or buy decision.
2.PURCHASING OR LEASING
Decision has to be taken that whether assets like buildings,machines etc.have to be

purchased or taken on lease basis.Here the total costs of two alternatives is to be compared in
order to calculate the annual savings or extra costs involved in purchasing or taking the assets
on lease.
Regarding CONTRACT MANUFACTURING IN RANBAXY IN MOHALI PLANT,

leasing decision is given greater emphasis after considering cost related factors and there are
four main leased parties.
Through cost benefit analysis applied on some of the products ;,it is clear that contract
manufacturing provides a cost advantage also in case of small products and common products that
other companies are also producing.

RANBAXY LABS LTD.
OUTSOURCING IN RANBAXY
For Indian pharmaceutical companies, here are very few options to explore in the
product patent era. Being unable to invest the kind of funds needed for discovery research
they have found Contract Manufacturing means to maintain high Growth rate. They want to
leverage this strength to grow bigger by transforming their relationship from one of vendors
to global producers to that of strategic partners.
For example
Ranbaxy Laboratories Ltd. and Lupin Laboratories were the first Indian companies to bag
manufacturing contracts from multinational companies – RANABXY from ELI SILLY &
LUPIN from CYNAMID. When Ranbaxy developed an alternative process for
manufacturing Eli Lilly’s patented drug CEFACLOR , the American company sensed that
it would lose its markets to low cost substitute in countries that did not recognize product
patents.to make the best of the bad situation, Eli Lilly offered a manufacturing contract to
Ranbaxy for producing 7ACCA (intermediate for cefaclor).
In case of Lupin , Cynamid offered contract to the Indian company for the
manufacturing D2 AMINO BUTANOL.
For Wockhardt India Ltd , this 6 billion Pharmaceutical company has built a
40million manufacturing facility in Chandigarh to make nutritional products is using
this plant for contract manufacturing and has signed an agreement with FERRING
BV of NETHERLANDS for manufacturing certain FORMULATIONS for export.
The product will be made at WALLIS LABORATORIES, UK based company
acquired by WOCKHARDT will supply bulk drugs inputs from them.

RANBAXY LABS LTD.
PHILOSOPHY OF RANBAXY FOR ENTERING CONTRACT

MANUFACTURING
To seek opportunity company can add value. and so contract manufacturing is a

decisive strategy.
SUGGESTION
Rather than go in for vendor type of contract manufacturing ,preference should be to
partner an international manufacturer.That will give us a chance to contribute and
learn.
MERITS OF OUTSOURCING IN RELATION TO RANBAXY
1. Outsourcing has helped Ranbaxy to cut capital investment while circumventing

production Bottlenecks.
2. Outsourcing is a cheaper way of running a business. The less company produce in house,
the less company will suffer from the headaches of labors disputes and tough environment
regulations. Also through cost benefit analysis applied on some of the products. It is clear
that outsourcing provides a cost advantage also in case of small products and common
products that other companies are also producing.
3. There is one technical reason also for the swing towards outsourcing. Finding and
Testing new molecules for treating various drugs has become increasingly complex,
sophisticated and expensive , and moreover its time consuming. For eg, a new product say
Voglibose ,if company had to make the product in-house ,it would have to spend another 2
years to construct a new facility from the conceptual stage. and some products have to be
manufactured in 25 steps .This is the reason why we get some of the intermediates
manufactured from outside parties so as to retain the market share and also to save time and
cost.
FOR EXAMPLE :

RANBAXY LABS LTD.
APPROACH TOWARDS OUTSOURCING
Phased Approach:
Here in Phased approach, first we clear picture of market dynamics & evolution of
Industry. Identifying Perceived gaps in market. Then strategic option to fill them by laying
whom plan & putting it into operation.
GAP ANALYSIS IS DONE.
1. Vision of market, evolution of new sector
2. Market dynamics study
3. Action Plan / Implementation
Vision of markets & evolution of new industrial sector.
Need to assess vision a number of times & then reformations of policies & decisions has to
be done in relation to:-
• Cost
• Party
• Why new party?
Strategy adopted in Ranbaxy
Reassessed the manufacturing operations & policies to adjust a new competitive environment
which thus is driven by.
 Increased Govt. pressure
 Spread of development of new technologies.
 Competitors developing aggressive supply chain strategies.

RANBAXY LABS LTD.
STRATEGY 2
There are two types of Products in which Ranbaxy deals:
1. Technology Product
2. Commodity Product
Technology Product are basically new launched products. The essential technical
know-how of manufacturing that product is known to the Company only. As the company has
the monopoly so in the initial stage product can captures nearly 70% to 80% of the market
share. But gradually other companies start & the monopoly is lost. Technical know-how is no
longer a secret. Due to competition market share of the company goes down & the product at
this stage is known as Commodity Product.
After analyzing the competitor’s strategy.
Company shifts only commodity products to contract manufacturing. As lot of money

is involved in the R&D on developing new products. That’s why the technology product are
never being manufactured at contractual basis. In this case Company may outsource
manufacturing some of the intermediates i.e.; steps where technology involved is not secret,
but the final steps will be manufactured in-house only. Those products, which in company’s
viewpoint can be of better quality when manufactured through contract manufacturing, are
also outsourced. The production processes are kept under the constant vigil of a technical,
veteran person (known as Location Manager) sends by Ranbaxy.
MODELS ADOPTED BY RANBAXY
1. Minimum charges model
2. Processing per kg basis

RANBAXY LABS LTD.
Factors that led to this ignition of contract manufacturing in case of leased

parties/minimum charges model
1. Capital Requirement of vendor parties.
2. Low Asset Turnover
3. Underused capacity
Reasons for Contract manufacturing in relation to Ranbaxy
1. Consolidation of Large Pharmaceutical Companies :
2. Consolidation of Pharmaceuticals so as to meet the market requirement. Companies

have resulted the desire to outsource non core elements of their business, such as
manufacturing & packaging, has increased.
3. Over the period, there has been rapid emergence of variety of smaller companies for
whom outsourcing is fundamental element of their business model. As these elements
are more flexible or can molded as per the requirements required.
For ex. If the Volume of the Product increases according to the market or there should
be new demand for a product than a organization can go for Outsource Production to
meet he requirement of the market.
4. Competitive environment :
Even where Pharmaceuticals Companies retain in house manufacturing & packaging

activities, today's increasingly competitive commercial environment has driven most
to optimize efficiencies. Thus resulting in Outsourcing ; and it is increasingly useful
tool.
5. Optimization of Internal Performance :
In a plant like RANBAXY LABORATORIES LIMITED, where work is ongoing &

undemanding, But interspersed with smaller run sizes of alternate products, it often
make sense to Outsource later to maximize output of former.

RANBAXY LABS LTD.
Thus, Outsourcing helps in optimizing internal performance based on even

throughout, leaving outsource provider to absorb variations
6. "Bridge Step" investments in capital equipment to cater volume growth. IN CASE OF

COMMON OR SMALL PRODUCTS
If in-house
production
INVESTMENTS IN VOLUME OF
CAPITAL EQUIPMENT GROWTH
WITH TIME
Out
Source
INVESTMENTS IN VOLUME OF
CAPITAL EQUIPMENT GROWTH
WITH TIME
In the above diagram, it is been explained that more and more of capital investment
will be required to make if commodity products are to be manufactured in-house due to which
capital will get locked in fixed assets and there will be no circulation of that money which
widens the gap between growth and time some products have to be manufactured in many
steps, but if some part of production is outsourced then, without making any capital
investment, volume of growth increases.

RANBAXY LABS LTD.
Analysis between Growth Vs Investment
Table 1
60
50
40
30 Growth
Investment
20
10
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Year 2004
As shown above Growth Vs Capital Investment ,for the Year 2006 which was splitted in 4
Quarters where the Capital Investment in house production is there, volume of growth is G
attained in 'T' yrs. But if product is outsourced, then capital investment is reduced from
62.6 in the first half of the year to to54 in the next half simultaneously level of growth has
increased from 55.4 to 105, with short time period. Thus resulting in profits with low
investment.
.
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Growth 20.4 35 50 55
Investment 30.6 32 29 25
6. New product launch:

Outsourcing can be helpful in following ways:
(1) Internal capital expenditure can be limited to conservative forecast demand,
with contingency of excess demand being observed by outsource provider.
Thus Minimising the stock outs after launch.
(2) Utilizing outsource providers an offer pharmaceutical houses additional
capacity to enable more rapid build up of launch stocks.

RANBAXY LABS LTD.
7. Risk Management Strategies: Most companies have developed RMS; & recent events
have served only to reinforce the necessity for these. and this is the reason to follow
expansion through integration( contract manufacturing is done).
8.
Risk of entry of potential

competitors
Bargaining Forces of Bargaining

power competition Power of
of suppliers created by Buyers
rivalry
Threat of
substitute
Products
8. Social/Corporate Social Responsibility:

'Contract manufacturing' business led to revival of sick units who had adequate technology;
But due to Recission, the sick units had faced the downfall. Thus, Ranbaxy, (through Contract.
Manufacturing) revived the sick units, simultaneously it created job opportunities, sharing
corporate responsibility.

RANBAXY LABS LTD.
CORPORATE SOCIAL
RESPONSIBILITY. HOW?
REVIVAL OF SICK UNITS
CREATING JOB OPPURTUNITIES
MEET THE MARKET DEMAND
9. Save an Manpower & Training Costs :

Outsourcing helps a Co. an opportunity to exercise a tighter run on manpower and
training costs (Training Cost/ M. Req.)
10. Work Load Reduction :
For launching a new product. R & D common products & products in the small process
or steps.
Mutual Benefit : Mutual Benefit of both the parties air solved as vendor gets
opportunity to increase their profit ratio simultaneously, Ranbaxy-can concentrate on their R
& D more & which help further expansion of the company.
11 Lengthy Procedure:
Some products have long life; i.e. the processing time to manufacture a product is long.
If the product is manufactured in Ranbaxy (in house) it leads to increase in operation costs; so
through Outsourcing we can reduce our costs of Product as well as manufacture other
uncommon product.

RANBAXY LABS LTD.
Expansion : Being a global company; diversifications of business is the necessity to maintain

their position for this anticipation of new / future products have to be made beforehand only so
as to have edge over competitors. In these circumstances, they need to fulfill their targets;
which is possible through outsourcing.
eg : If according to production plan ,target is to manufacture 20 products in 2006. But

presently the company has the capacity to manufacture only 10 products (in house
plant). So this target can be met through outsourcing
12. Improves Company's Flexibility:
Contract manufacturing allows Company. to convert production costs from fixed to

variable to better meet fluctuating demand. Company is better able to utilize its resources
where and when required. It can quickly react to product demands, and avoid workforce
reduction caused by unexpected bulls.
13. Redirect Resources towards Activities which have greater Return :
Outsourcing allows a Company to direct more resources towards strategic activities,

such as Product Development (R & D) and Marketing) instead of operational details. The
advantages are obvious as more concentratation on Regulatory Markets, increased speed to
market, improved understanding of market & a strategic advantage of competitors can be
given.
14. Reduce and control overhead costs :
Outsourcing is a tool that allow company to control overhead costs by more effectively
managing their workflow. Managers find it more profitable and flexible by Outsourcing
activities to contractors who specialise in that area.
15. Concentrate on Core Competencies :
Outsourcing allows company to focus its resources on core competencies. It can devote
more time to the things that it dew well. For eg. it gives more attention to regulatory markets
that actually make the company money.

RANBAXY LABS LTD.
16. Timely Delivery of the Product :
To meet the Market Demand, Delivery plays a major role in outsource. Any delay of
raw material effects the production of the intermediate which further relates to the Finished
goods.
Reasons for Outsourcing -Stability :
Can provide Company advantage to comply. with all sizes by improving a products
speed to market.
Outsourcing testing allows Ranbaxy . : To turn to stability contract labs for their
expertise in handling stability programs, with benefits :
 Cost Savings
 Rapid & efficient generation of stability results.
 New drug development
 Eliminates need for large capital expenditures on analytical equipment stability
chambers or rooms.
Company can rely on contract stability labs for their knowledge & analytical resources
& for data generation, interpretation & reporting.

RANBAXY LABS LTD.
INTRODUCE A NEW OUTSOURCE LOCATION
Vendor Selection
Vendor Selection
Decision Making
Selection of vendor Party
Reference
from Co's who Meeting Taking tour Web Sites, annual
have worked Sales Of reports, financial
with them Team facility presentation
before
Opportunity Check
to ask Company’s
questions operations
Whenever searching for Right stability contract lab, it is important to evaluate the
company you plan to entrust with your product.

RANBAXY LABS LTD.
Critical considerations are:
 How long has the company been in business?
 Is the Company financially stable & able to serve over long term?
 Does the Company have scientific expertise?
 Does it have adequate equipment & capabilities?
 Is the Company committed to outsourcing?
 Does Company have a store service record?
 Is the Company responsive and flexible?
 Is the Company GMP/GLP compliant?
Many ways to find answers for these questions like:
Pre-Requisites
 Meeting with contract lab's sales team
 Taking the tour of facility will allow to see company's operations first hand and
will give an opportunity to ask questions.
 Many Companies have labs, Websites, Annual Reports & Financial

presentations where more detailed information will be needed.
 Other Tools such as
Internet, trade Magazines & other Publications are also important tools for comparing
contract labs and help determine their capabilities and dosage forms to which their expertise is
most suited.

RANBAXY LABS LTD.
Reference from these who have worked with specific contract labs can confirm our
decision.
Tools for selecting

Appropriate Vendor party
Internet Trade Magazines Other publications

RANBAXY LABS LTD.
Vendor Selection Checklist (Ranbaxy)
 How long company is in business? i.e.; there Experience & Expertise with
similar Projects .Complete study, Analysis to be done before selection of new
vendor as it is viable for the growth of the Company. They hire or share the
knowledge and experience of a Vendor to produce more & more.
 Financially stable: Vendor should be financially sound so that he should invest

more as per the Company’s requirement or condition.
 Adequate Scientific Expertise: Management should be highly skilled, &

expertise in there respective fields so as to solve the problem which arises at the
time of Production, Quality testing, Inventory problem.
For Example – when there is a loss of Product in Quality then a problem of

production is to be sorted by the Research team of the company.
 Commitment Towards Outsourcing – This is one of the most important factor

on which the Company’s business depend. This is directly or indirectly related to
Delivery of the Product.
FOR EXAMPLE– Product FOSINOPRIL (Finished Goods), this includes 26

Intermediate steps. Out of which 22 steps are to be produced at two different
vendors, & the last 4 steps are to be manufactured by Ranbaxy. But if in any case,
the delivery of the Intermediate is delayed by any of the vendor then the further
production suffers which results the delay in delivery of Finished Goods in the
market , which also further effects the Profit growth as well as the Goodwill of the
Company.
 Store Service Record
 Company Responsive & Flexible
 GMP / GLP
 Compliant

RANBAXY LABS LTD.
Requisites of Good Contract
 Security & Confidentiality
 Regulatory Compliance
 Liabilities
 Performance
 Costs & Prices
Mode of Payment to Vendor:
Certain amount is to be fixed to the Job worker against the Work done , which basically
depends upon the number of the steps involved for the processing of the Product, which is
called as Conversion Cost or Processing Charges . Conversion Cost are calculated on the basis
of two-contract models adopted by Ranbaxy.
Minimum Charges Model / Leased amount
This is adopted in case of new products where no historical data is available to estimate
conversion charges. So, the minimum amount is fixed to Contract Manufacturer so that he
may carry out the operation smoothly. In this model , Expenses of Diesel , Power , Fuel e.t.c.
are paid on Actual basis.
Processing Charges per KG or Conversion Charges
Includes follwing factors:
- Utility & Power

- Safety , ETP , main & misc. @ 10%
- Interest , Depreciation & Margin
- Manpower required
- Quality Testing Cost e.t.c.

RANBAXY LABS LTD.

RANBAXY LABS LTD.
Negotiations can severally challenge a relationship.

There may be disagreement about efficiency parameters, such as output speeds & lab
our requirements. Parameters might be perceived too cautions by Buyer or too Ambitions by
Seller. Buyer may use this information to try to drive down Sellers margin or to claim for
himself and all benefits of cost reduction programmes.
Benefits of outsourcing
• Outsourcing/ In-house Production Advantages
• Converting fixed cost into variable costs.
• Reducing its Asset base
• Securing continuity for making its products from an established source an allowing it a
longer time to switch production at a later date in future
RANBAXY CHECKS THAT OUTSOURCING PARTY
• Implement flexibility within the context of contract manufacturing.
• Maintain motivation of team during continues transition.
• Create an organization that would be attractive for such people, as had technical
expertise.
- Manpower required
- Quality Testing Cost e.t.c.

RANBAXY LABS LTD.
WORKING OF CONTRACT MANUFACTURING PROCESS IN RANABXY
STEP 1 VENDOR SELECTION

Selection of the outsource location
Action plan is prepared for
1. IDENTIFYING THE FACILITIES AVAILABLE
 proper infrastructure
 process requirements……rector capacity available
 feasibility analysis
 technical analysis
2. FINANCIAL STRENGTHS OF THE COMPANY ARE ANALYZED

For this bank guarantees have to be given by the party before making a contract with
Ranbaxy.
3. DOCUMENTS
Confidential agreements are prepared.
Confidential /manufacturing agreements includes
1. Quality agreement
2. Technology agreement
3. Financial agreement
Includes modes of payment, bank guarantees, insurance coverage
4 TECHNOLOGY TRANSFER
Standard norms for production of intermediates (steps) at outsource location are fixed
by the R&D department which provides basis for production. the production process are

RANBAXY LABS LTD.
kept under the constant vigil of the technical, veteran person(known as location manager).in
order to maintain the secrecy of the technology, one party does not manufacture all the steps
of a product. For example to manufacture Benazapril,first three steps are manufactured by

laurel and the rest by cardinal.
There are two modes in which contract manufacturing is undertaken in Ranbaxy
1. Lease parties
2. Nonleased parties /Job work
LEASED PARTIES
PARTY SAP CODE
 LAUREL ORG ANICS LTD 1100000402

 TANUK PHARMA(INDIA) LIMITED 1100001453
 CARDINAL DRUGS LIMITED 1100000863
 SHANTI DRUGS PRIVATE LIMITED 1100005277
NONLEASED PARTIES
 MORIAN CHEMICALS LTD. 1100005447

 SAURAV CHEMICALS 1100000664
 SAURAV CHEMICALS(NEW PLANT) 1100006466
 JAPSON PHARMACEUTICALS LIMITED 1100003929
 PARABOLIC DRUGS 1100002595
 DRUGO CHEMICALS PVT LTD 1100005235
 SURYA PHARMACEUTICALS LTD 1100002284
 NECTAR LIFE SCIENCES LTD. 1100005889
 M/S NOUVEAW EXPORT PVT LTD(RELIANCE) 1100005448

RANBAXY LABS LTD.
 APPOLO BIO-CHEM LTD 1100005192
 ESKAY FINE CHEM 1100002195
 GUJRAT 1100002865
 CHEMCON ENGINEERS LTD. 1100005237
 SMS PHARMACEUTICALS LTD 1100000382

 PANCHSHEEL ORGANICS LTD 1100003700
 MAGMA 1100006091
 LEEDS CHEM 1100000559
 ARORA METHY 1100000318
 HINDUSTAN PLT 1100000498
 PENAMLABORATORIES LTD 1100000618
 UNIMARK REMADIES LTD 1100000706
 SUPRIYA PHARMACEUTICALS LTD 1100000848
 PIONEER LABS 1100003160
 NIPER 1100006216
 G.G CHEMICALS&PHARMACEUTICALS LTD 1100006325
 JHONSON MATHEY 1100006024
LEASE PARTIES
Introduction
Leasing is an arrangement that provides a firm with the use and control over the assets
of the firm without buying and owning the same. it is a form of renting the assets.Ranbaxy
has a contract with the leased parties that gives the right to use the assets of the party over
an agreed period of time for a consideration called the lease rental. the contract is regulated
by the terms and conditions of the manufacturing agreement. The lease rent is paid at the
beginning of every month. at the expiry of lease period the assets reverts back to the owner
of the leased location.

RANBAXY LABS LTD.
Operating lease at Ranbaxy
 Short term on period to period basis
 Lease is cancelable at a short notice.
 Ranbaxy is responsible for the maintenance, insurance and taxes of the asset
depending upon the agreement.
ROLE OF PRODUCTION DEPARTMENT IN CONTRACT

MANUFACTURING
On the basis of the market demand ,production plan of finished goods is prepared. and
then the intermediate plan is prepared on the basis of which contract manufacturing is
undertaken.
Market Demand
(Europe, China, Japan. U. S.)
Production planning department
Production Plan (Finished goods)
Norms (recipes)
Contract Manufacturing Intermediate Plan

RANBAXY LABS LTD.
PRODUCTION PLANNING AND CONTROL
Production department is the heart of any manufacturing organization. one of the most
important function of production department is production planning.
Production planning is an effort to maximize process of conversion of raw material

into finished goods. Production planning and control is an integrated function if
organization has to derive maximum benefit out of planning. The procurement of raw
material, quality control and inspection of raw material, inventory levels in the process, the
production costs, labour available, machines and equipments, reactor capacity :all have
influence on planning of production operations which convert procured raw materials into
finished goods. All functions have inter links with other departments and more and more of
such links are considered in planning process.
DECISION OF PRODUCTION MANAGEMENT REGARDING

OUTSOURCING
1. Technology selection
2. Capacity management
Rector capacity of rectars at the outsource location on the basis; the individual size lot is
decided.
3. Scheduling
4. System maintenance
5. Calculation of conversion charges

RANBAXY LABS LTD.
MATERIAL RESOURCE PLANNING
Material requirement planning is essentially computerized Planning and control

system for the effective management of production and inventories in a
manufacturing environment. MRP derives its Power From the very important
distinction between independent demand inventories. Finished goods and S pare Parts
are independent demand inventories. Dependent demand is derived From the demand
Of finished goods or “end items.’
An MRP system is driven by the master schedule which specifies the end
items or output of the production function. All future demands for work in
progress and raw materials should be dependent on the master schedule and be
derived by the MRP system from it. Since condition are usually changing ; the
master schedule is a far better basis than past demand for planning raw materials
and work in progress inventory.
Using MRP, the master schedule is exploded into purchase orders for
scheduling the factory. This process of the parts explosion requires a detailed
bill of materials which lists each of the parts needed to manufacture one unit
of each item. The required parts may include assemblies, subassemblies, and
manufactured parts and purchased parts. In the process of explosion, it is necessary
to consider inventories of parts which are already on hand or no order.
Another adjustment made during parts explosion is for the production and
purchase of lead items. starting with the master schedule, each manufactured or
purchased parts is offset [ i.e. . ordered earlier] by the amount of time it takes to
get parts [lead time] . This procedure of offsetting ensures that each component will
be available in time to support the master schedule.
In most companies, financial systems are being driven by transactions and

assumptions different from material control systems. The tool now exist to tie MRP
and financial systems together by a simple conversion from physical units to
rupees and vice versa. Physical control thus becomes the basis for financial control.

RANBAXY LABS LTD.
THE MRP system can also be extended to support product costing and
accounting. As a matter of fact, a cost module is sometimes provided as a part
of the MRP software. Today further advances in computer technology are
making MRP systems practical even for small businesses. Today there are
approximately 200 MRP software packages on the market.

RANBAXY LABS LTD.
MATERIAL RESOURCE PLANNING
Material Resource
Planning process
Market Forecasts
Demand
M. Schedule
for production
Inventory Material Information on

Status Requisite plan product design,
structure
Manuf. & Capacity No

Proc. Lead adequate
time Yes
Final master prod.

Schedule

RANBAXY LABS LTD.
PRODUCTION FOCUS ON QUALITY
Introduction to QUALITY maintained at Ranbaxy
As part of their ongoing commitment to produce high tech quality drugs and
pharmaceuticals that cater to the specific needs of markets around the world, they have
increased the investment in state-of –art manufacturing facilities that confirm to the highest
international standard.
The Mohali plant is specially designed to produce advance cephalosporin’s for

international market. With automate production modules, it is one of the most sophisticated
plant of its kind in the country. Like all their plant other plant it has been designed to the
specifications of W.H.O. and F.D.A, USA.
Rigid quality measures are applied at every stage of manufacturing at all their plants.
From careful selection and analysis of raw material to continue in-process monitoring of
quality on every line. Form meticulous testing of finished product to meet stringent in hours
standard that go beyond the pharmacopoeia to constant monitoring of market feedback, to
ensure continuous customer satisfaction.
Room temperature stability study’s sale packs are also regularly picked up at random
form different part of the country for post market financial highlights, with research and
development programs. The date has been collected form various journals, papers and annual
reports published by the company. The audit report presented plays an important role. Role
to bring forward the audited accounts and company’s performance during the year to achieve
the highest attainable standards of producing quality.
The valuable co-operation and continued support extended by the associates, head of
the department, division and other staff members contributed n the project work.

RANBAXY LABS LTD.
QUALITY CONTROL for ex:

Products transferred from outsource
party
Through Transporters
End Product Intermediate to final

Return to party for reprocessing Rejection
product
No Citalopram
Quality Approved
Yes
Stores of Ranbaxy Finished Goods
GRN Material Work payment

Document made to parties

RANBAXY LABS LTD.
QUALITY CONTROL IN CASE OF OUTSOURCED PRODUCTS

Intermediates are sent from the outsource locations to Ranbaxy after a quality check at
vendor location. When the products are transferred to the stores,quality test is conducted here
for the products received from outsource locations. If products are approved by the quality
department, then GRN document against them is prepared, and payment is made and then
these products in the form of intermediates are converted into finished products.
But if products don’t cater to the quality parameters, then the rejected stocks are again
sent back to the outsource locations for further processing.
QUALITY CHECK AT RANBAXY
Quality department consists of two main branches
a) Quality Control (Q.C)
b) Quality Assurance (QA)
Quality control checks the internal functioning of the quality department. Quality
assurance assures that the finished goods which are released by the factory are according to
the standards prescribed by various quality control department like I.P.B.P., U.S.P.
Quality check is done right from the acquisition of material to its ultimate finished
form which includes following steps.
a) Quality check of raw materials
b) Quality check of reaction in process.
c) Quality check of intermediates.
d) Quality check if finished products
Quality check of raw – Raw material may be delivered in tankers or in the form of
consignment. Tankers must be tested in 24 hours and the procedure consists of sampling,
testing and then punching in the results.

RANBAXY LABS LTD.
For consignment the procedure consist of sampling, testing, punching and making
labels. This procedure should take minimum number of days.
Quality check of reaction in process is done by checking their pH, moisture content, %
age composition, through tests like T.L.S., Gas Chromatography (G.C.), High pressure liquid
Chromatography (H.P.L.C.0) etc.
Quality check of intermediates involves checking their description, purity etc. according to
specifications given to the quality department.

RANBAXY LABS LTD.
CONTROLS BY FINANCE DEPARTMENT
The Details of the Monthly stock Report held at the vendor location is provided by the Vendor
which is attested by the authorized signatory of the Company. Documents provided :
 Material Consumption Statement (MCS) provides a base on the basis of which

Reconciliation statement and the Efficiency Report of the Raw material , Intermediate
& other solvents is prepared.
In this statement, the Actual Usage & the Output of a particular product is given that
helps to calculate the efficiencies of the product [ Yield Variance + Usage Variance ] +
number of batches for production of each product is included. These Variances is being
calculated against the Standard fixed by Ranbaxy. This is statement is being provided
on monthly basis which includes the Opening stock (Closing Stock of previous
month) , the actual reciepts of Inventory in particular month , stock consumed & details
regarding the Closing Stock either in Physical (store) , Shop Floor (i.e;in plant area) or
in WIP (Work in Process) is held at Vendor Location .

RANBAXY LABS LTD.
 For Reconciling :
In this, whatever the stock are received by vendor from RLL and what is dispatched to
RLL from vendor is given. The information is given date wise for each month which makes
the process transparent as Ranbaxy follow SAP; so all the details regarding movements of
stock are shown. This helps in analyzing the status of the stock derived i.e.
Inventory according to Production Plan Vs Current Status of Stock are compared.
 For Calculating Efficiency :
In this statement also, the Actual Usage & the Output of a particular product is given
that helps to calculate the efficiencies of the product [Yield Variance and Usage Variance] +
calculated against the Standards fixed by the Ranbaxy. This statement is provided on monthly
basis which includes the Opening stock (Closing Stock of previous month), the actual receipts
of inventory in particular month, stock consumed and details regarding the Closing stock
either in Physical (store), Shop floor ( i.e.; in plant area) or in WIP (Work in Process) is held at
Vendor location. for example as attached
Loss & gain in the product is calculated in Efficiency Report , which is due to the
excess consumption of the usage which is in the form of Cleaning & Washing of reactors,
Other handling losses , excess inputs in the product or due to over heating or over cooling of
the output which results in the loss of Output against Standard .The Losses in the Products can
be grouped as-
YIELD VARIANCE
USAGE VARIANCE
While Calculating the Yield Variance , the Actual Production of the Product for some
fixed batches is being compared with the Standard Output & the Variance is being calculated
on the Product Standard Cost ie.;

RANBAXY LABS LTD.
Yield Variance = (Standard Output – Actual Output ) x Standard Cost
But for Calculating the Usage Variances , the Actual input of the Raw Material’s in the
product is compared with the Standard input and the Variance of the Input is being calculated
with Standard Rate of the Rawmaterial. I.e.;
Usage Variances = (Actual Input – Standard Input) x Standard Rate
 Receipts and Dispatch Status :That is monthly stock received from Ranbaxy (date
wise ) & how is further dispatch to Ranbaxy.
 -Batch Data Reports(BDR) : Which covers the actual consumption of the Raw
materials used in the particular product. It also includes the Batch starting time &
completion time.
 Quarterly Audits or Surprised Audits : Audits are being conducted by Ranbaxy, to

get current status of Inventory lying at the vendor location. Complete check of records
, documents & procedures adopted by the location is to be audited by the auditor.
 Physical Verification of Raw Materials, WIP & Intermediates are to be cross-checked

with the Stock Register / Ledgers of the stores. All the issues slips, indents slips are to
be physically checked, the Inwards/Outwards records are to be checked , any Sale
/Purchase records are to be checked by the Auditors . After all this procedures, the
report is to be submitted to Ranbaxy.
 -Daily Production Report (DPR) : Data gives the exact picture of the current batches
taken in the particular day ie.; whether the Batch is In-Process or in Wet or Dry form or
Dispatched to Ranbaxy
Details of Useable or Nonuseable Solvents : Solvents such as Acetone, Methanol, Toluene

e.t.c.; will be used further in the process or to be drain off or to be sale off or to return to
Ranbaxy.

RANBAXY LABS LTD.
 -Details of Rejected & Non-Moving Stocks : Details of the Rejected & Non moving
stocks are to be provided by the Vendor so as to take corrective decision against them.
For Rejected Intermediates , the Rejected Quantity is to be reprocessed again so as to

convert into pure form . During this process there is a loss of quantity also. for example :
Vendor - Cardinal Drugs
Product – Jap-2-3P (Cilastatin)
Rejected Quantity received from Ranbaxy to Vendor – 45 kg
After Reprocessed, the Quantity produced – 40kg
Actual Loss during Reprocess – 5 kg
For Non-moving Stocks , A complete details of Raw materials & others is to be

provided to Ranbaxy on monthly basis so as to take a decision against them. This is due
to Change of Product demand in the market which results to stop the continuous
production , shift the product to some other location e.t.c.
 Details of Intermediate/Raw Materials Ageing Report – This is due to avoid the

violation of Excise Rules i.e; no Raw Materials , Solvents or Intermediates are to be
kept at the Out Source Location for more than 180days. It is to be consumed in the
product or return , to the Ranbaxy Labs. at there respective plants (Mohali /Toansa
/Dewas). This is to be calculated on the basis of following factors :
o Closing Stock Quantity as on 31st of every month.
o Batch Completion date
o Batch number
For Example :

RANBAXY LABS LTD.
 Details of Activity Forecast: : Activity Forecast, fundamentally based on Demand of

the product (FG) which directly or indirectly effects the Outsource production . The
Activity is completely dependent on the Market Requirement, where Demand of FG is
created . But for this particular FG , several chain steps are involved & there
Productions are planned according to Production Planning Management whether the
Steps are to be produced in-house or at the Out Source facility. This Acitvity is being
calculated on Conversion Charges paid to the Vendor .Activity Forecast helps to find
out whether the Capacity of the Location is being fully utilized by the plant or what is
the tentative payout to the vendor for the next three months.
It also helps to calculate the WIP HOLDING NORMS. –
This is been calculated by comparing ,
• GROSS WORKING CAPITAL
• ACTVITY FORECAST
WIP Holding Norms = number of days x Gross Working Capital (OS)
Activity Forecast for the next month
For example :

RANBAXY LABS LTD.
WORKING CAPITAL MANAGEMENT
INTRODUCTION :
As levers of the financial management go, none bears more weight than working
capital. It’s the lifeblood of the business, and every manager’s primary task to keep it moving
and put shareholders capital to work efficiently and effectively. Working Capital is the
capital used day-to-day operations in the organizations. It denotes the money that circulates
in the organization for the smooth functioning of the organization.
Working Capital is the differences between resources in cash (Current Assets) and
organizational commitments for which cash would be soon required (Current Liabilities).
Current Assets are the resources which are in cash or will soon be converted into cash in
“ordinary course of business”. The faster a business expands the more cash it will need for
working capital and investment. Thus,
WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITES
Capital required for a business can be classified in two main categories –
1. Fixed Capital
2. Working Capital
Every business needs funds for two purposes – for it’s establishment & to carry out its
day to day operations. Long term funds are required to create facilities through the purchase
of fixed assets such as plant and machinery,land,furniture etc.;. Investment in these assets
represents that part of the firm’s capital which is blocked on a permanent or fixed basis and is
called Fixed Capital. /working capital refers to that part of the firm’s capital which is
required for financing short term or current assets such as cash, securities, debtors and
inventories. Funds thus, invested in current assets keep revolving fast & are constantly being
converted into cash and this cash flows out again in exchange for other current assets. Hence
it is known as revolving or circulating capital or short term capital.

RANBAXY LABS LTD.
There are two concepts of Working Capital :
 Gross Working Capital (GWC)
 Net Working Capital (NWC)
In broad sense, the term Working Capital refers to the Gross Working Capital and
represents the amount of funds invested in current assets. Thus, the gross working capital is
the capital invested in total current assets of the enterprise. Current assets are those assets,
which in the ordinary course of business can be converted into cash within short period of
normally one accounting year. Following are heads that cover Current assets :
Cash in Hand & Bank Balances.
Bills receivable
Sundry Debtors (less provision for bad debts)
Short term loans and advances
Inventories of stocks (Raw materials, Work in Progress, stores and spares, finished goods))
Temporary Investments of Surplus funds
Prepaid Expenses
Accrued Income e.t.c;
The Gross Working Capital concept is financial or going concern concept whereas Net
Working Capital is an accounting concept of working capital.

RANBAXY LABS LTD.
Trend of Gross working Capital
GROSS WORKING CAPITAL FROM July 2004

to Feb 2005
RM
Month Stocks Interm. FG's Total
Stocks
July-
04 208.00 123.43 4.44 335.87
Aug-
04 197.25 135.73 6.72 339.70
Sep-04 222.90 174.21 0.00 397.11
Oct-04 221.88 180.50 5.12 407.50
Nov-
04 198.99 122.66 2.25 323.91
Dec-
04 197.98 111.89 2.25 312.12
Jan-05 177.81 120.84 0.69 299.34
Feb-05 155.99 125.98 1.08 283.05
250
200
150
RM Stocks
Interm.
FG's
100
50
0
July-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05
VALUATION OF COMPONENTS OF GWC :

RANBAXY LABS LTD.
For the preparation of GWC reports, the major components required are,
[ Raw Materials
[ Work in Process
[ Finished Goods
& Valuation of the above calculated on Actual rates.
1) Raw Materials-The average amount of Raw Material kept in stock will depend on
quantity of Raw Material required for the production during the particular period and the
average time taken in obtaining the fresh delivery. At Ranbaxy Plant a record is maintained
of raw material used in factory & where and which plant location or store house it is kept as
per the nature of Raw material. Similarly at Outsource locations the Raw materials send from
Ranbaxy for the Job work are kept separately & valued accordingly
Liquid Bromine : a Special Chemical Warehouse is there
Isopropene : in a Cold room
Nitrogen Gas : in Cylinder shed.
Likewise, other Chemicals & Solvents are being kept in different storage locations.
according to their nature. Raw materials are further divided into following categories :
 Routine form – The Raw materials used for the routine production.
These are further divided into :
[ IMPORTED
[ INDIGENOUS or DOMESTIC
Imported raw materials are imported from abroad and can be further classified into :

RANBAXY LABS LTD.
AL : Advanced Licensed
The AL raw materials are imported on the condition that they are to be exported under
a certain time period and therefore they are exempted from import duty. There are 154 Raw
Materials under this category. for ex : Activated Carbon from China e.t.c.
OGL : (Open General Licensed)
Under this category the Raw materials have no such condition involved, so import
duty is charged. There are 83 such Raw materials.
Out of this Routine Raw material, the imported Raw material,indigenous forms
around 25%.
Indigenous or Domestic Raw materials are acquired from within India.. They form a
very small part of the total value of Raw materials. There are around 181 types of local Raw
materials which are purchased from India. For ex., Hyflow, Calcium Chloride, Sodium
Chloride e.t.c.
 Job work and Reprocessing - Job work represents the Raw materials
sent to other manufacturing firms for further Processing.
Reprocessing represents the raw materials which have been rejected and have been
lying in the vendor plant for the last 5-6 months.
Both these components form a very small part of the Total Raw materials.
 Off Products / Bye Products – Raw Materials used for the

manufacturing by products or to manufacture finished goods from the manufactured
by-products.
 New Products / Exhibit Batches – Raw materials used for the

manufacture of new products or exhibit batches. These also form a very small part of
the Raw Materials.
Obsolete Raw Materials - This category is not included in the raw materials stock as it
has gone obsolete and has no value left in it. Thus their value

RANBAXY LABS LTD.
(Quantity x Purchase price) is taken in price.
As explained above the Raw Materials under certain heads are transferred to
Jobworker (OutSource Location) for further Processing and for this data has been monthly
collected through Material Consumption Statement (MCS).
VALUE OF R.M = QUANTITY X PRICE
Thus two components of valuation are,
A) Quantity Raw Materials
B) Price of raw materials
A) Quantity:
Sources of Information - Plant & Stores
They give the actual quantities of Raw Material at the end of each month.
How is stock taking to be done?? – Manually or SAP
What is the time period ?. Continuous or Periodic.
B) Price : Rate of the raw materials are based on the actual purchase or the average price
purchase per month.
2.) Work in Process – The second major component of the inventory is Work in Process and
it is further classified into : Routine WIP, New Products and Stream change. The actual
quantity of WIP at the end of each month is acquired from the plants as they have running
records of the same.
Pricing : The valuation of WIP depends on the following,
Method used for pricing raw materials
The manner in which fixed manufacturing overheads are treated.

RANBAXY LABS LTD.
At Ranbaxy, the absorption costing method for valuation of inventory is followed. In this the
fixed and the marginal manufacturing overheads are treated as product costs and included in
inventory valuation. Thus, the rate of WIP is,
Standard Rate + O/H recovery (Fixed & Variable manufacturing overheads)
Rate per KG
But at Outsource location , the Inventory valuation is based on the Standard Cost with
Conversion Charges paid to the Job worker for the conversion of the process. Thus the rate of
WIP is,
Standard Rate + Conversion charges
Rate per KG
The WIP of a particular product has the following components,
1) Finished Goods – under quality check or not yet issued to stores.
2) Intermediates – these are WIP at various stages of production
3) Solvents
4) Raw Materials
Thus, for each components there are different Standard rates and Overheads
recoveries These are acquired from the standard work sheets which are prepared for each
products (WIP) at the beginning of the year.
Finished Goods – They are classified into four categories,
1) DOMESTIC
a) Domestic – PHARMA
b) Domestic – INDIA BULK
2) EXPORTS

RANBAXY LABS LTD.
a) Exports – 2 Steps AL
b) Exports
The quantity is acquired from the plant.
Pricing : As mentioned before, the valuation of finished goods depends on the following,
method used for pricing, Raw Material i.e, Weighted Average Method manner in which Raw
Materials overheads are treated.
At CD, Ranbaxy, the absorption costing is followed for valuing the inventories, which
means that is fixed and variable manufacturing overheads are treated as product cost and
included in inventory valuation, Thus the rate of F.G. is,
Standard Rate + Budget Raw Material + O/H recovery + NWC.

Rate per KG
Note :- NWC is net working capital i.e., interest on capital employed in Working Capital
The Standard Rate here is revised every quarter.
Creditors –These are divided into 2categories:
Payable for,
Domestic
Imported
The Valuation is done as follows, The LCs, hundis accepted for the month, trade
creditors all for the month are added and than payments actually made are substracted to find
out the creditors outstanding at the end of the month .

RANBAXY LABS LTD.
Similarly, the Valuation of the Raw Materials & WIP of the Contract Manufacturing
are to be calculated on the same basis but Conversion cost are to built for the recoveries
incase of Overheads.
NET WORKING CAPITAL
Standard Rate is 13.25 % of average annual NWC.
Average annual NWC = Total RM Cost x (RM holding day / 365 ) + ( RM cost
+packing + total overhead / NO + FO) x ( WIP Holding number of days / 365 ) + (Total RM
+ packing +total overhead) x (FG holding number of days / 365) – { Total RM Cost x
(creditors number of days/365)}
NWC interest = Annual NWC x 13.25%
Overheads = a product wise share of expenses is made in the budget for the year and
is reviewed quarterly.
How are PROJECTIONS & CURRENT ACTIVITY made?
There are two concepts applied here,
~ Projections
~ Current activity
Projections are the values of Closing stock inventories and creditors projected for each
month. Projection here signifies what ‘ would be ‘ at the given / specified point of time. On
the basis of the current activity of next month, an estimate is made about what ‘should be ‘
or the ‘ideal situation’ concept is applicable.This is to be calculated to control the Inventory
& to know the status for the next month. At Ranbaxy, this is done at the Outsource location
as well as at in-house to know the actual forecasting of the Raw Materials, Productions &
Inventories.
Work in Process – For Work in Progress mostly Current activity is calculated and
projections are taken to be more or less similar.

RANBAXY LABS LTD.
Calculation of Current Activity – For calculation of current activity of WIP, norms are
used which are in the form of number of days and signify the number of days in which the
total value of production should be WIP.
Current Activity for a month = Production for next month * norms * rate of WIP per
kg unit
This C.A. should be compared with the actual WIP of the month.
Preparation of WIP Norms- These norms are prepared by the account’s department
after consulting with Production planning. At the beginning of the year, the account
department makes limited cost sheets taking Budgeted Rates & Budgted quantities for each
month. From this Cost sheet, the norms for each product for the year are calculated
WIP consist of four components which are explained as -
 Raw Materials
 Intermediates
 Solvents
 Finished Goods
RAW MATERIALS
Pack Size = Quantity of RM in one pack as supplied by the supplier.
Batch Size = Standard Usage (fixed, mostly) for production.
It is the specific quantum of the raw material required to complete one cycle of production
process. It determines the value of WIP. Thus, bigger the batch size, higher the value of
WIP.
Multiple = The number of batches required for production. If three batches required the
multiple is three.

RANBAXY LABS LTD.
Value of RM in WIP = Batch Size (in KG) x multiple x rate of each pack
Pack Size = Va
For example for W-I-P norms of product PENTAZOCINE norms are calculated for its raw
material as follows:
S. ITEM Unity Packsize INPUT NO OF NO OF NO OF NORM

No. PER BATCH PACKS PACKS OF QT
BATCH ES-2 OF
R.M
1 R-1 Kg 50 340 680 13.6 14 70
2 R-11 Kg 35 160.82 321.64 9.2 10 350
3 R- Ltd 200 734.4 1468.8 7.3 8 1600
111
PACK SIZE-It is the specific quantity of raw material present in a pack or a drum
purchased form the supplier.
BATCH SIZE- Batch is a specific quantum of raw materials required to complete one
process. Batch size determines the value of work-in-process. So bigger the batch, the more
the value of work-in-process batch size of every product is determined separately and could
be termed as standard usage for production and it usually does not change. Here batch size
of R-I is 340, of RII is 160.82, of R-III is 200.
As two batches of raw material should be present as per norms so the quantity of raw
material for two batches is calculated. For raw material R-I the quantity is 680, for R-II 321,
for R-III is 1468.8

RANBAXY LABS LTD.
Then the number of packs is calculated by dividing the quantity of raw material with the
pack size. For ex R-I has packs =
680 = 13.6 =- 14 packs

50
Packs then the quantity which is present in these packs are calculated and these values
are taken as NORMS OF QUANTITY OF RAW MATERIALS.
SOLVENTS Further classified as,
• Fresh
• Recoverable
• Recovered under test
Fresh / Mother liquor – It is the solvent stream which is to be processed to get the usable
solvent.
The part of mother liquor in process forms a part of WIP.
Recoverable - Mixture of left after process of production / distillation. This would be

reprocessed again to get mother liquor. But until the batch size is complete, they are not
processed further. So this time they are a part of WIP.
Recovered under test- These are the solvents which have been recovered from
recovery module& have been sent to quality control for checking quality. If the quality
control department takes more time then WIP increases.
Now the total of the three is calculated to find the value of solvents as WIP = Vb

RANBAXY LABS LTD.
FOR SOLVENTS STREAMS
STEP BATCH STREAMS MOTHER MOTHE UNDER RECOVERE TOTAL

SIZE LIQUOR R RECOVERY D UNDER (LT)
E PER LIQUOR TEST
BATCH
STEP- 340 S-1 700 3000 4000 2100 9100
1
STEP- 340 S-II 800 800 800 2200 3800
2
MOTHER LIQUORE PER BATCH: is the quantity of solvent which is required for
production of product pentazocine
MOTHER LIQUOR: refers to the solvent stream which is to be processed or distilled to

get usable solvent.
BATCH SIZE OF RECOVEREBLES: As recoverable are the mixture which is left after
the production. These are to be reprocessed to get back the raw materials. So until the batch
of recoverable is complete, they cannot be processed further and till they are not processed
further they will part of the work-in-process. If the batch size of recoverable is not
complete, they will increase the value of work-in-process.
RECOVERED NDER TESET: are the solvents which have been recovered form the
recovery module are have been sent to the quality control for checking of quality. Checking
generally take 1-2 days. If the Q.C department takes more time then also the Q-I-P
increases, then the total of test MOTHER LIQUOR, UNDER RECOVERY AND
RECOVERED UNDER TEST is calculated.
INTERMEDIATES – Some of the products are multistage or multi-step products which

require to go through more than one production stage. Thus, the products after each stage is
known as an Intermediates that is which is still in the process of production.
The Value of these intermediates is calculated to add to the WIP = Vc.

RANBAXY LABS LTD.
FOR INTERMEDIATES
OUT PUT = yield*batch size
CYCLE TIME: It is the time involved in one production process, longer the time longer the
production process. A longer processing time ultimately leads to higher work in process.
Once the norms for stocks of raw materials, solvents, intermediates and finished goods
have been fixed then the total value of stock is calculated on standard value. The total
capacity is multiplied with the value of the product per kg. Then the days form holding of
inventory are calculated as follows.
Here in the example
VALUE OF PENTAZOCINE PER KG = 17085
TOTAL CAPACITY = 450 PER MONTH
TOTAL VALUE OF STOCK FIXED AS PER NORM = 10.16 MILLION
NO OF DAYS = 10160000 * 28
17085 * 450
=37 DAYS
FINISHED GOODS – Finished Goods form a part of WIP till the time they are issued to
the stores. The various categories are,
1) FG under testing
2) Rejected Stocks of FG
3) FG lying > 1 month < 1 month.
Total of these components = Vd

RANBAXY LABS LTD.
All these four components that is raw materials, finished goods, intermediates and
solvents are added & the values of WIP is determined.
Value of WIP = Va + Vb + Vc + Vd
Norms(number of days) = Value of WIP Va + Vb + Vc + Vd)
Value of product (standard budgeted rate) x per Day capacity of production
Note : This norm of WIP is determined for each product. The rate used for determining the
norm is budgeting rate which is used in standard cost sheet.
2. Raw Materials – As in the case of WIP the current activity for raw material inventory is
calculated with is more or less similar to the projections.
The formula for calculating current activity is,
CA = Projected value of R.M consumption during next month * norms
The norms here are the number of days for which the raw materials are ideally in
inventory based on their consumption. These norms are developed by the plant and stores
depending on the nature of raw materials, conditions of supply, usage and other factors
relating to each type of raw materials.
3. Finished goods- Here the calculation of current activity and projection finished goods are
different.
Calculation of projection of a month: Here the production planning department comes

to help. It provides the projections of O.S production, sale and hence, closing stock. This
projected closing stock is then multiplied by the rate which is used to value the actual
current sales of the last month. Thus, the projections are available. The key element used
here is ‘projected current sales’.
In the case of current activity, the same information is used but in a different way.
Here the key element used is projected sales. This projected sales figure is multiplied by the

RANBAXY LABS LTD.
rate used to value actual current sales of the previous month. Thus, projected sales is
calculated.
Now, current activity= Projected sales (in Rs)* norms

28 days
Norms here are number of days the finished goods would be in stock. It is also
provided by the stores and the manufacturing department. Thus, the current activity of this
month on the basis of next month is calculated.
Packing Material –It is based on past trends.
Stores and spares-the method used for calculating projections is the same as that of
raw materials.
GIT/RMIT-This information is provided by the materials management department.
Creditors- There are two types of creditors,
1. Domestic
2. Imported
The projections for domestics creditors is based on the past trends as there is not other
reliable method of calculating projected creditors.
In the case of imported raw materials the information regarding the same is provided
by the Import Cell, Corporate Office, Delhi..
The procedures they follow for making these projections are,
As the orders for the imported raw materials are made well in advance (2-3 months)
and letter of credit are drawn upon the record of the raw materials it would be purchasing in
the coming 2-3 months. From this total the payments actually made till present are deducted
to calculate the outstanding creditors as per projections.

RANBAXY LABS LTD.
CASH MANAGEMENT IN RELATION TO CONTRACT

MANUFACTURING
A cash budget is the most important device for the control of receipts & payments of
cash. Cash budget is an estimate of cash receipts and disbursements during future period of
time.
Cash Management deals with-

1) Cash inflows and outflows.
2) Cash flows within the firm.
3) Cash Balance held by the firm at a point of time.
Cash management needs strategies to deal with various faults of cash.
a) Cash Planning
In contract manufacturing of Ranbaxy, cash planning is done on the basis of the value
involved in production of volume of intermediates which is to the manufactured during the
year.
b) Cash Forecasts & Budgeting
Budgeting, regarding allocation of cash for contract manufacturing needs to be done so

as to know the actual requirement of cash. For this valuation of the of the budgeted volume of
Intermediates during the year is done i.e.
The total cost that will be involved in converting the raw material into intermediates on
the basis of
1) Conversion charges of each product are first calculated.
Total cost = Conversion charges+ Cost of raw material freight expenses+ Octroi
2) Calculation of Intermediate volume on the basis of usage of each product

RANBAXY LABS LTD.
Production plan is based on BIS 05 volume i.e. as the volume of a particular product is fixed
for the year, the Intermediate Quantity is calculated on per KG used of FG for C/o-
For example
Fexofendiine (Product)- requirement according to Finished Goods Production .Plan for

the year is 21000 KG and the Inter step is Azacyclonal which is Outsourced and the usage is
1.35 KG, so the Interim Volume to be manufactured during year is 28350 KG (based upon the
usage). & according to the Demand of the product during the year.
Total Value incurred = Conversion charges x Interim volume
Azacyclonal
usage: 1.35 per KG
Conversion cost 1250/kg
Actual requirement of funds is 1250*28350

RANBAXY LABS LTD.
Inventory Management
‘Inventory Management is very important for smooth running of business In relation to

Ranbaxy, (C.M.) inventory management starts with proper production planning as discussed
earlier.
Financial Concern Regarding Inventory

¤ At outsource location
¤ To ensure continuous supply of raw materials.
¤ Avoid overstocking and under stocking.
¤ Maintain investments in inventory at optimum level.
¤ To keep material cost under control.
¤ Analyze the causes of variances.

RANBAXY LABS LTD.
Inventory Control in Contract manufacturing
A proper inventory control not only helps in solving the acute problem of liquidity but
also increase profits and causes substantial reduction in the working capital of concern.
Tools and techniques followed that leads to effective inventory management at
outsource locations–
1) Determination of stock levels.
2) Determination of safety stock.
3) Preparation of inventory reports.
More and more emphasis should be given as determination of stock levels helps in
reducing carrying costs and ordering cost.
4) A.B.C. Analysis
5) Determination of Economic Order Quantity.
6) Agency schedule of inventories.
Over Stocking
I Over-stocking of stocks at outsource locations leads to
¤ Reduction of liquidity
¤ Starving of stocks at outsource locations.
Production planning plays an important role because if insufficiently plan, it can lead to
over-stocking.
So, the investments in inventory is done in reasonable limits, because sometimes under
stocking of stock could result in stoppage of work at outsource locations.

RANBAXY LABS LTD.
Holding Inventories at outsource locations
Although holding inventories involve blockage of firm's funds and the cost of storage
and handling. Certain level of inventory has to be maintain to facilitate uninterrupted
production at outsource locations. In the absence of inventory at outsource locations, there
could be delay in execution of orders which causes loss of time.
Certain percentage of levels of inventory are also maintain to reduce
 Ordering cost
 Carrying cost
 Transportation cost
Purpose of Holding Inventory at outsource locations
1. Precautionary Motive Which necessitate the holding the inventory for meeting
unpredictable changes in demand and supply of material.
2. Speculative Motive Which induces to keep inventories for taking advantage of price
fluctuation, saving re-ordering cost.
Risk & Cost of Holding Inventories
1. Capital Cost :- Maintaining of inventories result in blockage of firms financial

resources. Cost involved, opportunity cost, and locking of funds in inventory.
2. Risk Deterioration in Quality :- Quality of raw material deteriorate while they held by
vendor parties for longer period.
3. Storage and Handling cost :- Holding of inventories also involved cost on storage
inform of insurance charges as well as handling materials.

RANBAXY LABS LTD.
For eg.
> APPOLO BIO CHEM LTD
In case of Apollo Biochem Ltd. Total stocks lying there are worth Rs. 3.26 lacs while
the insurance coverage provided on this stock is worth Rs. 50 lacs.
Ratio of Stock lying at vendor locations as against insurance coverage provided
Value = 3.26: 50
= 1:12
Stocks Insurance Coverage

1 12
> JAPSON PHARMA

Value= 3.23: 33
= 1: 10
Stocks Insurance Coverage

3.23 33
3. Risk of Price decline :- There is always a risk of reduction in prices of Raw materials
in holding inventories.

RANBAXY LABS LTD.
Controls at Ranbaxy for “Contract Manufacturing”
Control cycle is dealt with the control process as used in the context of strategy
implementation evaluation. For contract Manufacturing in Ranbaxy deals with
1. Setting standards
2. Measurement of Performa
3. Analyzing variances
4. Take corrective actions.
EVALUATION PROCESS.
Strategy Plan /
Setting standards
objectives Actual performance
of performance.
Measurement of
performance
Reformulate Check Standard
Analyzing Variance
Feedback

RANBAXY LABS LTD.
STANDARD COSTING AND VARIANCE ANALYSIS
In contract manufacturing, for calculating the efficiencies; standard costing is followed.
• Standard costing aims at elimination of wastages and increasing efficiency in

performances through setting up standards for production expenses and production
performance
• Standard cost is determination in advance of production, of what should be the cost.
So, standard costing is the technique used for cost control.
• Standard costing compasses.
• Ascertainment of standard costs under each element of lost.
• Measurement of actual costs.
• Comparison of Actual costs with the standard costs to find out the variances.
Analysis of variances for the purpose of ascertainment of reasons of variances for taking
the appropriate action where necessary so that ma
Calculation and Analysis of variances: -
Control is very important function of management through control, management

ensures that actual performance conform to standard performance analysis of variances is
helpful in controlling the performance thereby achieving profits. MANAGEMENT BY
EXCEPTION technique is followed in Ranbaxy Laborites Ltd. This technique an efficient
ways of exercising control because management can not devote their limited time to each and
every item. Reason which give rise to variances are analyze an action plan against these are
setout.

RANBAXY LABS LTD.
For Calculating Efficiency:
In this statement , the Actual Usage & the Output of a particular product is given that
helps to calculate the efficiencies of the product [Yield Variance and Usage Variance] +
calculated against the Standards fixed by the Ranbaxy. This statement is provided on monthly
basis which includes the Opening stock (Closing Stock of previous month), the actual receipts
of inventory in particular month, stock consumed and details regarding the Closing stock
either in Physical (store), Shop floor ( i.e.; in plant area) or in WIP (Work in Process) is held at
Vendor location.
Loss & gain in the product is calculated in Efficiency Report, which is due to the excess
consumption of the usage which is in the form of Cleaning & Washing of reactors, Other
handling losses, excess inputs in the product or due to over heating or over cooling of the
output which results in the loss of Output against Standard .The Losses in the Products can be
grouped as-
YIELD VARIANCE
USAGE VARIANCE
Material Usage Variance :-
It is that portion of material cost variance which is due to difference between standard
quantity of materials specified for the actual output and actual quantity of material used . The
Actual input of the Raw Material’s in the product is compared with the Standard input and the
Variance of the Input is being calculated with Standard Rate of the Raw material. i.e.;
Material Usage Variances = (Actual Input – Standard Input) x Standard Rate of raw
material.
These are calculated on basis of standard rates of raw materials if actual consumption
per kg. of raw material differ from standard set, then material yield variance arises.

RANBAXY LABS LTD.
Material Yield Variance :-
It is that portion of material usage variance which is due to difference between

standard yield specified and actual yield obtained. i.e yield that arises due to difference in
output according to standards required and actual output realized. While Calculating the
Yield Variance , the Actual Production of the Product for some fixed batches is being
compared with the Standard Output & the Variance is being calculated on the Product
Standard Cost ie.;
Yield Variance = (Standard Output – Actual Output) x Standard Cost
YTD variance measures the abnormal loss on per kg. usage of materials or savings on
materials.
For Example.

RANBAXY LABS LTD.
– Calculation for the Efficiency of the Product
Input'
Input
S.no. It_Desc Uom Rate s Std.Cost Yield Usage
STD. Actual Var. Var.
256.4 1200.0 1200.0

1 Pencillin-G Bou 0 1.000 256.400 0 0 0.000
Alpha
Glycrine 290.0
2 base KG 0 0.250 72.500 300.00 400.00 (0.029)
Ethyl 3900.0 4500.0
3 Acetate L 45.00 3.250 146.250 0 0 (0.027)
2160.0 2100.0
4 Toluene L 21.50 1.800 38.700 0 0 0.001
3300.0 4000.0
5 Methanol L 30.15 2.750 82.913 0 0 (0.021)
Pivaloyl 175.6
6 Chloride KG 0 0.560 98.336 672.00 950.00 (0.049)
1260.0
7 HCL Comm. KG 10.96 1.050 11.508 0 900.00 0.004
1100.0
8 Hyflow KG 35.00 0.80 28.000 960.00 0 (0.005)
Sodium 2640.0 2200.0
9 Chloride KG 3.50 2.20 7.700 0 0 0.002
Nitrogen 365.0 2064.0 2500.0
10 Gas CDM 0 1.72 627.800 0 0 (0.159)
0.250
1994.33
yield 0.687 3 824.40 950.00 0.250 (0.283)

RANBAXY LABS LTD.
In the above case
If we take into account the input per kg. Of raw material it clears that raw material
consumption (usage) shows unfavorable variance i.e.
There is unfavorable usage variance.
REASONS FOR THIS PROBLEMS AND THE ACTION PLAN:
1. Excessive wastage at vendor location by the foreman concerned there is responsible for
this situation.
.2. Variance could be due to the consumption that is made by parties on actual basis or
wrong setting up of standard i.e. norms should be fixed.
3. There could be wrong mixing up of material and the production manager employed at
vendor location are responsible for this, due to ineffective supervision.
4. Wrong specifications of the norms is another possible reason and R& D department
should review the norms so as to avoid any possible loss in the near future.
5. Careless handling by the storekeeper at vendor locations.
6. Poor quality of the raw material purchased by the vendor locations could be another
possibility.

RANBAXY LABS LTD.
Cash Lock in System
(value in millions)
Name of vendor Insurance sum Stocks Over-under

party provided
Drugo Chemicals 0.35 0.10 0.25
Parabolic 450 210 240
Eskay Fine Chem. 80 0 80
Precautionary Motive
Though insurance coverage have been provided against the inventory at outsource
location in order to meet various contingencies.
Problem
Excess insurance sum provided on inventory resulting in stagnation of cash thereby reducing
the liquidity position.
Cost Involved
1. Handling cost Large amount of premium to be paid.
2. Opportunity Cost
Anticipation of the production to be made at outsource locations should be done and then the
amount of insurance coverage be decided.

RANBAXY LABS LTD.
WIP HOLDING NORMS
Calculation of number of days(inventory holding)
This is been calculated by comparing ,
• GROSS WORKING CAPITAL
• ACTVITY FORECAST
WIP Holding Norms = number of days x Gross Working Capital (OS)
Activity Forecast for the next month
No. of days of inventory holding at outsource locations

Excise rule Inventory lying at vendor party should not exceed 180 days.
Ranbaxy Rule Inventory holding at vendor locations should not exceed 30 days.
Case As on 31 JAN 07
Name of the Interm. Inventory holding/ days
party
Saurav Penta-4 50
Shanti Citalopram 41
Calculation of number of days(inventory holding)
Production planning should be made more effective so that there is less blockage of
cash in the form of closing stock. A decision has to be taken that whether this stock lying idle
should be kept with outsource party or should be transferred back to Ranbaxy if not in use
keeping in mind the following fact.

RANBAXY LABS LTD.
Idle Inventory
 No value addition
 Rising total cost
 Blockage of liquidity
 No synergic effect.

RANBAXY LABS LTD.
SUGGESTIONS
1. More Focus required for timely availability of Raw Materials at vendor locations.
2. The physical mismatch of stock i.e lying at vendor party and stock in relation to
that recorded in SAP should be avoided.
This could be due to the fact that consumption in some of the parties is on
‘actual basis.so,to avoid this mismatch, norms should be fixed; thereby reducing the burden of
normal losses and abnormal losses. .
3. It is essential to enlist cause of yield variances (in semi step) as well as usage variances
at various locations so that abnormal losses could be curbed.
5. Material Consumption Sheet which are sent for reprocessing should be sent back
within fixed time frame so as to avoid a excess valuation of Rejected Intm. / WIP .
6. Taking into consideration view points specified by management at leased locations:
timely dispatch of raw materials from Ranbaxy laboratories limited to the vendor
locations should be there so as to avoid idle capacity of Machines
7. The quality check department should take the minimum time possible and if
this is not practical, then the company should fix the minimum time that that should
be required for quality testing . Because payments which has to be made to vendor
parties depend upon the GRN document issued by Quality department after approval.
8. ‘Rise in Rejection Rate’ leads to rise in ‘Transportation Cost’ which is to be

incurred by Ranbaxy Laboratories Limited. So ‘ Quality Parameters ‘ need to be more
strengthened at vendor Locations . Regular continues check of Quality at every
step of Production Process will further decrease the rejection Rate , there by
Reducing the:
 .Transportation Cost
 .Carrying Cost
 .Costs incurred on Quality testing.

RANBAXY LABS LTD.
9. Reduce working capital
 The holding time of inventory blocked with outsource parties should be reduced
as it leads to blockage of inventory keeping in mind the lead time, actual
consumption of RM, buffer stock .
Speeding up of process of transfer of R.M. to O/s parties & intern to Ranbaxy should be there.
10. Quick action slow-non moving inventory lying at Out Source locations.
Better the quality, lesser would be the WIP, rejected stocks have to go through further
modification & until it as approved by Quality department, it will remain as WIP &
increase its value. So the Management. Of Ranbaxy at Outsource location should keep
a strict check so that Quality is maintained.
While the product showed on overall positive variance but usage variance i.e. the inputs
of RM shows drastic losses. Efforts should be made to reduce their wastage.
11. Efforts should be made to keep the norms up to date.
12. Norms should be set realistically as possible it as to give a correct estimate of inventory
levels.
13. More Focus required for timely availability of raw material at vendor locations to avoid
stockout situations.

RANBAXY LABS LTD.
GENERAL
14 Following the footsteps of Japanese companies that carry out clinical studies abroad, in
order to take advantage of lower costs & larger market size.
Taking into consideration, rising clinical costs, i.e. costs of getting a drug to market and
cost of successfully launching a product into market , huge expenses relating to
research & clinical cost commercializing a new drugs and also expenses relating to
rising R&D clinical cost that affect R&D strategies.Can be controlled through
outsourcing of R&D. This will help in contolling R&D budgets.
"It is hereby suggested that avenues should be kept open for outsourcing “Research
and Development”.
15. Taking into consideration, the refined “ Tax Structure”.

i.e. implementation of Value added tax and other excise duties hike.
Manufacturing base should be set up in excise-exempt zone, where more tax
exemptions are available like BADDI, UTTRANCHAL and JAMMU AND
KASHMIR
COST BENEFIT ANALYSIS and FEASIBILITY ANALYSIS
Income tax, and excise duty exemptions provided by the government in above areas has
forced pharmaceutical companies to shift at these Tax exempt zones.
(Baddi,Uttranchal,Jammu &Kashmir).
In case of BADDI
 In Baddi ,100% tax exemptions provided by the government for 5 years and then 50%
of the tax will be charged.
 Connectivity - approachable as compared to other areas like Uttranchal and J&K.
It is easily approachable for manpower based at Chandigarh , Delhi etc.

RANBAXY LABS LTD.
 Housing - Adjoining places like Parwanoo, Solan, Chandigarh solves this major
problem. Due to this ,efficient manpower would be available from the
surrounding areas But setting up plant at Uttranchal and J&K, efficient manpower
may not be available as people might hesitate to shift to these areas.
So Baddi is the most suitable place to set up manufacturing base.

RANBAXY LABS LTD.
SWOT ANALYSIS
STRENGTHS
 Indian pharmaceuticals have a strong infrastructure facility such as bulk drug

Manufacturing base, low Manufacturing & Capital cost skilled man power, optimal use
of process resources skills, focus on experts.
 Reversed Engineering which encourages a number of low cost manufacturer to
enter the market with low cost generic version of molecules sold globally.
 Growth rate @ 15% CAGR.
 Indian pharmaceutical market exceed 4 b $.
 Out of total drug production 20% is from bulk drug with a growth rate of 20%.
Weakness
 Out of total 23000 units in India only 250 are in the organized sector.
 The largest player has a market share of less than 6% while the top 10 player
account for only 35% of entire market.

RANBAXY LABS LTD.
Opportunity
 Concentration on generic drugs, new drugs delivery system, contract research and
clinical research.
 US generic market for $ 16 b. open for India.
 Generic drug share will be 90% of total sales by 2005-10.
 After patent is over, it will be open for generic market, in 2005 the drugs going off
patent are GlimeporidePassitronate,Dissodium, Zidovudum, Pravastatian Sodium,
Pranlukasf, Arthomycin,Paroxetine, Simbastatin and Sortaline.
 More contract manufacturing.
 More opportunity for alliances and M & A.
 More opportunity for R & D.
Threat
 Post January, 1, 2005 has necessitated the availability of vital drugs at costly
prices.
 Competition in the export will stiphen as more and more organized sector players
see that as a major area for growth & smaller player are likely to fall behind.

RANBAXY LABS LTD.
RISK MANAGEMENT
With the changing scenario, environmental scanning has to be done from time to time so as
to take appropriate provision against the threats posed in the competitive environment by
analyzing the strategies and forces of the competitors.
Risk of entry of potential

competitors
Bargaining Bargaining power Bargaining

power of suppliers Power of
of suppliers Buyers
Threat of
substitute
Products
With the changing scenario, environmental scanning has to be done from time to time
so as to take appropriate provision against the threats posed in the competitive
environment.

RANBAXY LABS LTD.
1. Threat of substitute/common
Products
Lessened
Appropriate Manufacturing Strategy
Through
COST CONSCIOUS MONITORING
Emphasis on quality
Risk of entry of potential Competitors
Reduced
Providing Quality Product
Affordable Price

RANBAXY LABS LTD.
CONCLUSION
Though outsourcing is a big market that provides company to concentrate more on their
core competencies, reduces the in-house production cost and retain margins and market
share. and also outsourcing is a new route of growth to tackle with product patents but
company must comply with rigorous and expensive regulations worldwide and using
third parties could make compliance more cumbersome and risky. Any Policy change by
the Government in privacy laws might impede data sharing. So, a need arises to work
out new avenues to face this type of situation in the near future.

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RANBAXY LABS LTD.

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF

MASTERS OF BUSINESS ADMINISTRATION (MBA)

ANANTA INSTITUTE OF BUSINESS , SAGIRATHI NAGAR

MATA GUJRI COLLEGE, FATEHGARH SAHIB 1

MATA GUJRI COLLEGE, FATEHGARH SAHIB 2

MATA GUJRI COLLEGE, FATEHGARH SAHIB 3

It is a privilege to record my heart felt gratitude to my esteemed guide Mr. vinod

I am extremely grateful to Mr Bharat Bhushan, Mr.Desrah, Mr Manoj, Mr Shiva Mr

MATA GUJRI COLLEGE, FATEHGARH SAHIB 4

The methodology adopted for the study was:

• Familiarization, examination and evaluation of the procedures relating to

• Calculations of parameters and norms, as also their financial implications.

The primary data is collected by various approaches so as to give a precise, accurate,

MATA GUJRI COLLEGE, FATEHGARH SAHIB 5

 To save on Excise Duty

MATA GUJRI COLLEGE, FATEHGARH SAHIB 6

MATA GUJRI COLLEGE, FATEHGARH SAHIB 7

GOVERNMENT POLICIES AFFECTING THE INDUSTRY

 Subsidies in industry inputs and relief provided to companies regarding tax

 Introduction of value added tax would provide a further transparency .

MATA GUJRI COLLEGE, FATEHGARH SAHIB 8

NATIONAL PHARMACEUTICAL INDUSTRY (NPA)

[ Custom duty payable

THE IMPACT OF DPCO

MATA GUJRI COLLEGE, FATEHGARH SAHIB 9

ASPECT OF HAVING IMPACT ON THE PHARMACEUTICAL INDUSTRY POST

MATA GUJRI COLLEGE, FATEHGARH SAHIB 10

Today, Ranbaxy has emerged as a Leading Pharmaceutical Company on the Indian

MATA GUJRI COLLEGE, FATEHGARH SAHIB 11

MATA GUJRI COLLEGE, FATEHGARH SAHIB 12

GARUDA STANDS FOR –G-ALVANISE ASPIRATIONS FOR

MATA GUJRI COLLEGE, FATEHGARH SAHIB 13

TO BECOME A RESEARCH BASED INTERNATION PHARMACEUTICAL COMPANY

1. Achieving customer satisfaction is fundamental to their business.

MATA GUJRI COLLEGE, FATEHGARH SAHIB 14

1. To be a leader in the pharmaceutical industry.

MATA GUJRI COLLEGE, FATEHGARH SAHIB 15

VARIOUS DIVISIONS OF RANBAXY LABORATORIES LIMITED.

DIVISIONS IN VARIOUS GEOGRAPHICAL AREAS

INDIA AND MIDDLE EAST

MATA GUJRI COLLEGE, FATEHGARH SAHIB 16

NIGERIA RANBAXY {NIGERIA} LIMITED

THAILAND UNICHEM PHARMACEUTICALS.LTD.,UNICHEM

INDIA VIDYUT INVESTMENTS LTD.,RANBAXY FINE

REXCEL PHARMACEUTICALS LTD.,SOLUS

VORIN LABORATORIES LTD.,

CHINA RANBAXY (GUANGZHOU CHINA) LIMITED

GERMANY BASICS GmbH.

HONG KONG RANBAXYPHARMACEUTICALS B.V.

U.S.A OHM LABORATORIES, RANBAXY PHARMACEUTICALS

MATA GUJRI COLLEGE, FATEHGARH SAHIB 17

NETHERLANDS RANBAXY (NEITHERLANDS) LIMITED

U.K. RANBAXY (U.K.) LIMITED

IRELAND RANBAXY IRELAND LIMITED

PANAMA RANBAXY PANAMA SA

POLAND RANBAXY POLAND Sp. Zo.o

SOUTH AFRICA RANBAXY (SA) PTY LIMITED

EGYPT RANBAXY (EGYPT) LIMITED

MATA GUJRI COLLEGE, FATEHGARH SAHIB 18

IN ADDITION TO THE ABOVE DRUGS, A NUMBER OF LABORATORY

MATA GUJRI COLLEGE, FATEHGARH SAHIB 19

7-ADCA NORMAL &(US)