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EXECUTIVE SUMMARY

Most of the companies, one of their major goal in sync with generating profit is to
have inventory turnover as much as possible. In order to meet the goal, it is important for
them to have a proper inventory management. Inventories are a vital part of the business.
Not only they are necessary for operations, but they also contribute to customer
satisfaction. Companies need to identify how much supply to produce in order to meet
the demand of its customers and not to create a substantial loss because of depreciation.
In the case of Big J Furniture it has an issue on dealing with their furniture when it comes
to inventory management. The company use in managing the inventories are physical
counts manually and periodically. A physical count in inventory is a coordinated process
that includes separating and recording thoroughly. Physical counts may also be a reason
for unrecorded markdowns, wrong classification of sale items and incorrect recording of
items received. Hence, physical counts are only accurate when done carefully and
effectively for it may be a cause of serious negative consequences.

Therefore, having a good inventory management is something that companies

need to focus on. Inventory management problems have attracted a lot of researchers for
many years. Generally, the issue is one of coordinating free market activity by effectively
planning the generation and the dispersion of products. The consultant provided a
recommendation wherein it can help the company to manage their inventory and a must
need to know how to manage the stock level by means of variable choice with the use of
inventory management system. The system can add ability, accuracy, and simplified data
and records to the company`s processes. Recent developments in data innovation have
equipped managers with the way to acquire better and timely information in regards to
the lead times, available assets, demands and capability. In the present progressively
competitive marketplace, customers are continually constraining providers to and at the
same time lessen expenses and lead times and increment the nature of their items.
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PROJECT BAKGROUND

One of the major goal of most businesses in generating profit is to have inventory
turnover as much as possible. Inventory turnover measures how fast a company sells
inventory. In order to fulfill the goal, it is important for them to have a good inventory
management to keep track of which products you have on- hand or ordered. Inventories
are a vital part of the business. Not only they are necessary for operations, but they also
contribute to customer satisfaction. Companies need to identify how much supply to
produce in order to meet the demand of its customers and not to create a substantial loss
because of depreciation. Therefore, having a good inventory management is something
that companies need to focus on.

Any business that sells products needs a reliable method for inventory
management. With bar codes, point-of-sale software and warehouse tracking,
computerized inventory management systems make it easy for businesses to stay updated
consistently. A manual inventory system is updated, maintained and controlled without
using a technical system. This means the business updates the inventory by physically
counting the inventory items on a frequent basis.

Big J Furniture is currently using manual inventory system. The company is

experiencing over depreciation expense to their inventory because they don’t have
information about what inventory is still in their storeroom. Due to manual recording,
they are not updated consistently. In this situation they can’t forecast what inventory is
needed to produce, the effect of this results from overstocking. Using manual inventory
system is time consuming, as the business owner of Big J Furniture must keep track of
inventory sales on a daily basis, while updating the records manually at the end of the
day.
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I. COMPANY BACKGROUND

1.1 Company Overview

Big J Furniture is a manufacturer furniture company located at Mc Arthur Hi-

way, Mabalacat, Pampanga. The business was established in April by Mr. Jesuito
Aringoy. The furniture are handcrafted using hardwood timbers, made of rattan and
known for their eye-catching designs. Beside of their own designs they are able to adapt
the needs of its client.

In the furniture industry, the work is divided into four parts. The steps are first,
the main carpentry, the one who does the furniture's body. Second, the upholsterer, the
one who puts on the foams in the furniture. Included in the work of the upholsterer, they
also does putting on the cover which was chosen by the customer. Third, the finisher, the
one who varnishes the furniture. They also do rattan made furniture. But it’s a different
process. First, the main carpentry who does the body and then smoothen out the wood
right after. The rattan that will be used should be soaked in a chemical that would make it
waterproof and long lasting and then dry it and then the workers will have to weave in
manually.
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II. OBJECTIVES AND SCOPE OF THE ENGAGEMENT

2.1 Root Problems Identified

On our study and to the pre-assessments we made in the Big J Furniture

Company, the problems they encountered are as follows:

1. Long selling terms of furniture. That leads to depreciation, which causes lower
income for Big J Furniture.

2. Manual recording that may lead to misappropriation of transactions

3. Lack of inventory management control

2.2 Objectives of the Engagement

Based on the root problems identified, we focus to the following objectives to

make some improvements or solutions to the problems:

Main Objective:

To improve on the inventory management system of Big J Furniture.

Sub-Objectives:

1. To improve on the forecasting of Big J Furniture.

2. To organize the warehouse flow of Big J Furniture.

3. Related Controls.

2.3 Scope of the Engagement

The scope of engagement is to provide quality control of inventory of Big J

Furniture Mc Arthur Hi-way, Mabalacat Pampanga.

This study will provide easy to use and easy-accessed inventory system on sales,
and report generation of transactions thus; transactions will be more reliable and faster. It
gives more accurate and secure records of sales and list of products.
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III. ENGAGEMENT METHODOLOGY

For the purpose of engagement, a four approached was conducted to meet the
objectives of the improvement of the inventory management of the company. Phase 1 and
Phase 2 was conducted last May 04, 2019. Phase 3 will be done after the gathering of
data. Phase 4 is expected to be done before May 20, 2019. The Phases are described as
follows:

Phase 1. Interview and observation of the company`s inventory management

The researchers conducted an interview with Big J Furniture owner or manager.

To get some information about the inventory management of the company, we prepare
some questions to be needed in the interview. The interview was done face-to-face with
the owner. After giving the interview, the owner or manager of the Big J Furniture gave
us a tour and showed us the process of recording the inventories. In line with that we are
able to observe how they manage their inventories.

Phase 2. Inspection on how maintain accurate and reliable inventory records.

Maintaining accurate records of inventory they make sure that when every item is
released they get to update the inventories in the record book. They see to it if the records
are complete and accurate. They do physical counts manually in issuing the inventory.

Phase 3. Determine problems and symptoms and find the root cause.

A root cause analysis is a process to easily identify the source of a problem. The
pre-assessment we made we determined the root cause which are; long selling terms of
furniture that leads to depreciation, which causes lower income, manual recording that
may lead to misappropriation of transactions and lack of inventory management control.

Phase 4. Recommendations and improvements to solve problem and root cause.

After we get the all information and identify the problem. The researcher made a
recommendation and improvement to solve the problem. All the information are fully
discussed in the recommendation part of this paper.
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Figure 1. Flow Chart of Big J Furniture

Determine
Interview and Recommentations
Inspection Problems and
Observation and Improvemens
Symptoms
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IV. BUSINESS CANVAS MODEL

The business model canvas is a strategic tool for developing new business models
or documenting and improving existing ones. Using this canvas will lead to insights
about the customers that the company serve, what value propositions are offered through
what channels, and how the company makes money. Business model canvas of Big J
Furniture has an identified nine (9) sections, namely: value propositions, customer
segments, customer relationships, revenue streams, channels, cost structure, key
activities, key partners and key resources.

4.1 Value Proposition

Big J Furniture offers different kind of furniture’s such as dining sets, sala sets,
bed frames, center tables, outdoor table sets, swings and cabinets. Most of the furniture’s
is different from those of some competitors, because Big J Furniture’s often used rattan
products which ensure high quality furniture.

4.2 Customer Segments

The customers of Big J Furniture are homeowners and resort owners. It also
delivers in some parts of Metro Manila. There are times that Big J Furniture experienced
a low demand of products that leads to depreciation of the furniture that was already
made which leads to lower income.

4.3 Customer Relationships

The owner/manager of Big J Furniture is hands-on in building customer

relationships through the use of social media by posting information or data about the
company, accommodating well its customers and makes sure that the expectations of the
customers are met.

4.4 Revenue Streams

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Most of the time revenues are acquired from social media, referrals, connections
and recommendations from family friends. There will be a payment once the orders are
placed.

4.5 Channels

The distribution scheme of the client is as follows: 1. Order, 2. Payment, 3. Ready

the order, 4. Place the order in the distribution area, 5. Ready for pick up and 6. Delivery.
The owner ensures that the customers’ are satisfied with the services being provided and
makes sure customers’ expectations are met.

4.6 Cost Structures

Most of the cost that the company acquire are the raw materials. One of the risks
encountered is the fluctuating customer demand. Demand in the furniture industry is
dependent on customer housing trends in which no one can tell when the furniture will
going to be sold.

4.7 Key Partners

The key partners of the company are homeowners and resort owners in which the
company produces orders of furniture and b. the company’s supplier of woods which is
the demolisher in some areas of Metro Manila.

4.8 Key Activities

The key activities of the company are composed of production and marketing and
legal. On the production level, it was assessed that the company produced ample of
furniture that leads to depreciation of some products that leads to incurrence of lower
profit. On marketing level, it needs to improve advertising efforts to attract more
customers and to demonstrate a high demand of furniture. Lastly, on the legal side, the
company is complying with all the legal requirements needed and therefore does not rise
to any problem.

4.9 Key Resources

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The key resources of the company are found to be sufficient when it comes to
capital and to the raw materials needed such as the wood, leather, rattan, etc. The
company has also a delivery truck for the items being purchased. The manpower was
assessed that they were doing well their jobs. But it was found out that the recording of
its inventory were just manual and there were no back up files.
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V. FINDINGS AND CONCLUSION

The findings of inventory management on operations of Big J Furniture showed

that the existing management on inventory of Big J Furniture are resulting from
overstocking. The basis for this conclusion is demonstrated on the following statements.

The findings includes the issuing and receiving of inventories, the company use in
managing the inventories are physical counts manually and periodically. A physical count
in inventory is a coordinated process that includes separating and recording thoroughly.
Thus, it helps in managing accurate business budget and stock levels that will help you
fulfill customer orders. In contrary with that, physical counts may also be a reason for
unrecorded markdowns, wrong classification of sale items and incorrect recording of
items received. Hence, physical counts are only accurate when done carefully and
effectively for it may be a cause of serious negative consequences.

The company inventory level is very high and thus resulting their business to cost
a lot of money. In addition, the inventory management system that the company uses
including the issuing and receiving of inventories are physical counts manually and
periodically.

With regards to recording of transactions and inventory, the company uses manual
recording. Which consumes more time and it leads to non-accuracy of records.
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VI. RECOMMENDATIONS

Operating a business through physical counts manually or periodically keeps an

accurate record but sometimes may be a reason for a negative consequences. Thus, the
researchers recommend the use of computerized system or perpetual system.

The researchers recommend that the company was able to upgrade the most
sufficient inventory system for them. Having an inventory management system help the
company to manage their inventory and stock items, keeping track where their assets are
and what they’re worth. The researchers recommend a five steps on how to design the
inventory management: 1.) Determine customer needs and forecast demand 2.) Categorize the
inventory 3.) Decide on a method 4.) Figure out how to track incoming/outgoing
inventory and 5.) Conduct inventory counts to ensure accuracy.

Furthermore, the researchers also recommend that company maintains a low

inventory level. Having high inventory level would easily allow the company to satisfy a
demand right away but would cost their business a lot of money. Keeping it low would
reduce the cost would nor create a substantial loss from deteriorating item.

Catalog is one of the best way of selling product which contains the list of items
and its price. The researchers recommend that the company produce catalog for the item
they have and the items that they can possibly manufacture. They can also post it on the
page of the company on Facebook to gain more customers.
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Appendix A - Engagement Proposal

May 06, 2019

Mr. Jesuito Aringoy

Owner
Big J Furnitures
Mc Arthur Hi-way, Mabalacat, Pampanga

Dear Mr. Jesuito Aringoy

Greetings!

We are 5th year students from the School of Business and Accountancy of
Colegio de Sebastian, currently taking up Management Consultancy, as a requirement to
pass the subject is to provide a consulting engagement service.

We have prepared this letter for our appreciation for extending your interest to
assist your company`s inventory management, wherein we can use our knowledge and
sufficient skills to analyze the uncertain problem and a work plan for the accounting
inventory system. We would like to provide an easy to use and easy-accessed inventory
system thus; transactions will be more reliable and faster. It gives more accurate and
secure records of sales and list of products.

This compose as a proposal provided to Big J Furnitures to assist in the

engagement relating to company`s inventory management.

During the pre-assessment conducted on the company, the following problems

were recognized:

1. Long selling terms of furniture. That leads to depreciation, which causes

lower income for Big J Furniture.

2. Manual recording that may lead to misappropriation of transactions.

3. Lack of inventory management control.

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Based on the root problems identified, we focus to the following objectives to

make some improvements or solutions to the problems:

Main Objective:

To improve on the inventory management system of Big J Furniture

Sub-Objectives:

1. To improve on the forecasting of Big J Furniture.

2. To organize the warehouse flow of Big J Furniture.

3. Related Controls.

For the purpose of the engagement, we propose a four-phase approach to meet the
objectives of the improvement of the inventory management of the company. Phase 1 and
Phase 2 will be conducted on May 05, 2019. Phase 3 will be done after the gathering of
data. Phase 4 is expected to be done before May 20, 2019. The Phases are described as
follows:

1. Interview and observation of the company`s inventory management

2. Inspection on how maintain accurate and reliable inventory records.
3. Determine problems and symptoms and find the root cause.
4. Recommendations and improvements to solve problem and root cause

Ms. Crissa Mae C. Calaguas

Goodwill Consulting Firm

Mr. Jesuito Aringoy

Owner
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Appendix B – Engagement Work Plan

Project Goal Statement: To improve on the Inventory Management System of Big J

Furniture.

Outcome #1: To improve on the forecasting of Big J Furniture.

Time Responsible Anticipated

Activity Inputs
Frame Person Outputs

Resources:

Paper, pen,
Crissa Mae C.
sound recorder Information
Interview May 05, 2019 Calaguas, Jia
No additional needed
Mae P. Santos
cost needed

Resources:

Checklist, Pen, Crissa Mae C. Accurate

Paper, Camera Calaguas, Jia demand of
Mae P. Santos, forecasting
Cost:
Observation May 5, 2019 Christine Mae
No additional I. Lagman
cost needed

Resources: Jena Manarang Record in the

sales of
Gather data Questionnaires, May 5, 2019 Mary Jaimelica
products
checklist, paper, Ingal
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pen

No additional
cost needed

Crissa Mae C.
Calaguas, Jia
Resources:
Mae P. Santos,
Examine Laptop May 5, 2019 Christine Mae Summary of
Forecasting I. Lagman, Forecasting
No additional
Method Mary Jaimelica Estimation
cost needed
R. Ingal, Jena
Manarang

Outcome #2: To organize the warehouse flow of Big J Furniture.

Time Responsible Anticipated

Activity Inputs
Frame Person Outputs

Resources: Crissa Mae C.

Calaguas, Jia Transcript of
Paper, Pen,
Mae P. Santos, Responsible
Camera
Tour in the May 05, 2019 Christine Mae Departments in
warehouse I. Lagman, Handling and

No additional Mary Jaimelica Storage of

cost needed R. Ingal, Jena Inventory

Manarang
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Resources:

Paper, Pen, Crissa Mae C. Information

Sound recorder Calaguas, Jia needed
Interview May 05, 2019
Mae P. Santos

No additional
cost needed

Resources:

Checklist, Pen May 05, 2019 Crissa Mae C. Summary of

Calaguas, Jia Inventory
Observation No additional
Mae P. Santos, Handling
cost needed
Christine Mae Process
I. Lagman

Resources:

Questionnaires Jena Manarang Summary of

Rules in Storing
Survey Estimated cost is May 05, 2019 Mary Jaimelica
the Inventory
50php cost Ingal
needed

Outcome #3: Related Controls

Activities Inputs Time frame Responsible Anticipated

Person Outputs

Resources:
Crissa Mae C.
Paper, Pen, Transcript of
Calaguas, Jia
Questionnaires, Supply Chain,
Interview May 05, 2019 Mae P. Santos
Internal Control,
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Sound Recorder

Access Control
Observation No additional cost
needed

Resources: Crissa Mae C.

Calaguas, Jia
Paper, Pen, Summary of
Mae P. Santos,
Camera Internal Control,
Tour in the May 05, 2019 Christine Mae
Supply Chain,
warehouse I. Lagman,
Inventory
No additional cost Mary Jaimelica
Control
needed R. Ingal, Jena
Manarang

Crissa Mae C.
Resources: Calaguas, Jia
Statement of
Mae P. Santos,
Checklist, Pen Inventory
Christine Mae
May 05, 2019 Control,
Inspection I. Lagman,
Inventory
No additional cost Mary Jaimelica
Management,
needed R. Ingal, Jena
Supply Chain,
Manarang
Access Control

Crissa Mae C.
Calaguas, Jia
Resources: Mae P. Santos,
Christine Mae Summary of
Examine the Laptop
May 5, 2019 I. Lagman, Control
related controls
No additional cost Mary Jaimelica Effectiveness
needed R. Ingal, Jena
Manarang
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Appendix C – Interview Transcript

Interview with Mr. Jesuito Aringoy, owner of Big J Furniture

QUESTION 1: What is the process you are using in receiving inventories?

ANSWER 1: In receiving inventories, we do physical counts manually. For example, the
furniture is ready for display, that's when we record it in the tally book. Also, once a
furniture is sold, we're going to update it in the book.
QUESTION 2: How about the process you are using in the issuing of inventory?
ANSWER 2: Same as the receiving, we also do physical counts manually in issuing the
inventory.
QUESTION 3: How often do you conduct physical counts?
ANSWER 3: We conduct physical counts on inventories periodically. Like what I've
said earlier, when an inventory is sold or ready for display, that's when we update our
record book. Furniture are easy to make an inventory count since they are huge items.
QUESTION 4: How do you maintain accurate and reliable inventory records?
ANSWER 4: Well, maintaining accurate records of inventory, we make sure that when
every item is released, we get to update the inventories in the record book. We see to it
that every record is reliable. Example we have 10 stocks on our showroom and we were
able to sell one, we're going to less that in the record book.
QUESTION 5: What are the steps you take in the course of segregating duties and
physical access control in the inventory of the company?
ANSWER 5: In the furniture industry, the work is divided into four parts. The steps are
first we have the main carpentry, the one who does the furniture's body. Second, we have
the upholsterer, the one who puts on the foams in the furniture. Included in the work of
the upholsterer, they also does putting on the cover which was chosen by the customer.
Third, we also have the finisher, the one who varnishes the furniture. We also do rattan
made furniture but in here, it’s a different process. First, the main carpentry who does the
body and then we smoothen out the wood right after. The rattan that will be used should
be soaked in a chemical that would make it waterproof and long lasting and then dry it
and then the workers will have to weave in manually.
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QUESTION 6: How do you manage the remaining inventory in your warehouse?

ANSWER 6: Well, of course, we advertise the remaining stocks in our showroom using
social media, specifically in facebook. We have an account that we boost so that it would
attract customers.
QUESTION 7: Has management taken the appropriate steps to safeguard goods against
risk of loss by theft?
ANSWER 7: Well, we do have CCTV's in the area. Furniture are huge items and I think
that the thieves will be having a hard time in carrying it. If you'd ask about the machines
that we use, it’s also huge and it’s properly stocked and arrange in the warehouse. There
are also employees who are staying and guarding the area.
QUESTION 8: Is material released from store rooms only on the basis of requisition
which are approved by a responsible official of the management?
ANSWER 8: No, not really. Once it was finished with all the process, we already display
it in the showroom.
QUESTION 9: Has the company currently uses a control system for managing the
inventory?
ANSWER 9: The control system we used is physical counts manually and periodically.
QUESTION 10: Is your current warehouse control effective?
ANSWER 10: Yes, its control effective.
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Appendix D - Documentation
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Appendix E – Curriculum Vitae

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