UNIVERSITY OF CENTRAL PUNJAB

OPERATIONS MANAGEMENT
SHEIKH M RUMMAN HAROON M FARHAN NAEEM SYED BILAL HASSAN
Submit To Prof Ghulam Rasul Awan

Final Project on Inventory Management

ACKNOLEDGEMENT

We are very thankful to our respected teacher Dr. Ghulam Rasul Awan who gave us the compete knowledge of the subject and encouraging us to complete our project. The knowledge he gave us and the whole class would be helpful throughout our practical life.

INVENTORY MANAGEMENT

INTRODUCTION

DEFINATION AND MEANING

The term inventory refers to assets, which will be sold in future in the normal course of business operations. The asset, which the firm stores as inventory in anticipation of need, is raw materials, work-in-process, and finished goods. Inventory often constitute a major element of a total working capital and hence it has been correctly observed, good inventory management is a good financial management. Basically Inventory is a list of goods and materials and those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

Inventory Management:
Inventory management means simply to manage the inventory. The inventory

management deals to manage the stock use for further and present usage. It is also deals in supply chain activities.

It includes;

Raw materials Parts to be used in Manufacturing Work In Process Inventory Finished Goods Spare Parts Other Items

Raw Material: A material or substance used in the primary production or manufacturing of a good. Raw materials are often natural resources such as oil, iron and wood. Before being used in the manufacturing process raw materials often are altered to be used in different processes. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges around the world. Raw materials are sold in what is called the factor market. This is because raw materials are factors of production along with labor and capital. Raw materials are so important to the production process that the success of a country's economy can be determined by the amount of natural resources the country has within its own borders. A country that has abundant natural resources does not need to import as many raw materials, and has an opportunity to export the materials to other countries. Work- In Process Inventory: It means material that has entered the production process but is not yet a finished product. Work in progress (WIP) therefore refers to all materials and partly finished products that are at various stages of the production process. WIP excludes inventory of raw materials at the start of the production cycle and finished products inventory at the

end of the production cycle. For accounting purposes, work in progress is considered as a current asset on the balance sheet. WIP is generally valued higher than raw materials, but significantly lower than finished products. Most companies strive to keep the actual amount of work in progress as low as possible, so as to reduce the amount of capital tied up in the production or manufacturing process. Another reason to keep WIP low is to reduce the risk of obsolescence, especially in fast-moving sectors such as technology and consumer electronics.

The reasons for keeping stock

All these stock reasons can apply to any owner or product stage. Buffer stock It is held in individual workstations against the possibility that the upstream workstation may be a little delayed in providing the next item for processing. While some processes carry very large buffer stocks. Safety stock It is held against process or machine failure in the hope/belief that the failure can be repaired before the stock runs out. This type of stock can be eliminated by programed like total productive maintenance. Over production It is held because the forecast and the actual sales did not match. Making to order and JIT eliminates this stock type. Lot delay stock

is held because a part of the process is designed to work on a batch basis whilst only processing items individually. Therefore each item of the lot must wait for the whole lot to be processed before moving to the next workstation. This can be eliminated by single piece working or a lot size of one. Demand fluctuation stock It is held where production capacity is unable to flex with demand. Therefore a stock is built in times of lower utilization to be supplied to customers when demand exceeds production capacity. This can be eliminated by increasing the flexibility and capacity of a production line or reduced by moving to item level load balancing. Line balance stock It is held because different sub-processes in a line work at different rates. Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process. Line balancing will eliminate this stock type.

Changeover stock It is held after a sub-process that has a long setup or change-over time. This stock is then used while that change-over is happening. This stock can be eliminated by different tools. Where these stocks contain the same or similar items it is often the work practice to hold all these stocks mixed together before or after the sub-process to which they relate. This 'reduces' costs. Because they are mixed-up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock which is due to a particular cause and should be a particular individual's responsibility with inevitable

consequences. Some plants have centralized stock holding across sub-processes which makes the situation even more acute.

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period boundaries since generally expenses should be matched against the results of that expense within the same period. When processes were simple and short then inventories were small but with more complex processes then inventories became larger and significant valued items on the balance sheet. This need to value unsold and incomplete goods has driven many new behaviors into management practice.

SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management.

OBJECTIVES AND NEED OF INVENTORY MANAGEMENT

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns.

The result of these factors is that there is not a single, integrated plan for the organization, there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.

Moreover, shortened product life cycles, increased competition, and heightened expectations of customers have forced many leading edge companies to move from physical logistic management towards more advanced supply chain management. Additionally, in recent years it has become clear that many companies have reduced their manufacturing costs as much as it is practically possible. Therefore, in many cases, the only possible way to further reduce costs and lead times is with effective supply chain management. In addition to cost reduction, the Inventory management approach also facilitates customer service improvements. It enables the management of:

 Inventories, Shortage of Raw Materials Stock outs Quantity Discounts Order Cycle Lead Time

So that organizations are able to meet or even exceed their customers' expectations.

The major objective of Inventory management is to reduce or eliminate the buffers of inventory that exists between originations in chain through the sharing of information on demand and current stock levels.

Broadly, an organization needs an efficient and proper supply chain management system so that the following strategic and competitive areas can be used to their full advantage if an inventory management management system is properly implemented.

Fulfillment of raw materials:

Ensuring the right quantity of parts for production or products for sale arrive at the right time. This is enabled through efficient communication, ensuring that orders are placed with the appropriate amount of time available to be filled. The supply chain management system also allows a company to constantly see what is on stock and making sure that the right quantities are ordered to replace stock.

Logistics:

The cost of transporting materials as low as possible consistent with safe and reliable delivery. Here the supply chain management system enables a company to have constant contact with its distribution team, which could consist of trucks, trains, or any other mode of transportation. The system can allow the company to track where the required materials are at all times. As well, it may be cost effective to share transportation costs with a partner company if shipments are not large enough to fill a whole truck and this again, allows the company to make this decision.

Smooth Production:
Ensuring production lines function smoothly because high-quality parts are available when needed. Production can run smoothly as a result of fulfillment and logistics being implemented correctly. If the correct quantity is not ordered and delivered at the requested time, production will be halted, but having an effective supply chain management system in place will ensure that production can always run smoothly without delays due to ordering and transportation.

Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the supply chain improves a company flexibility to respond to unforeseen changes in demand and supply. Because of this, a company has the ability to produce goods at lower prices and distribute them to consumers quicker than companies without supply chain management thus increasing the overall profit.

Reduction in Costs:
Keeping the cost of purchased parts and products at acceptable levels. Supply chain management reduces costs by increasing inventory turnover on the shop floor

and in the warehouse controlling the quality of goods thus reducing internal and external failure costs and working with suppliers to produce the most cost efficient means of manufacturing a product.

Mutual Success:
Among supply chain partners ensures mutual success. Collaborative planning, forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality, and support by the buyer of the suppliers managerial, technological, and capacity development. This relationship allows a company to have access to current, reliable information, obtain lower inventory levels, cut lead times, enhance product quality, improve forecasting accuracy and ultimately improve customer service and overall profits. The suppliers also benefit from the cooperative relationship through increased buyer input from suggestions on improving the quality and costs and though shared savings. Consumers can benefit as well through higher quality goods provided at a lower cost.

Activities / Functions of Inventory Management

Inventory management is a cross-functional approach to managing the movement of different products into an organization and the movement of finished goods like their own brand First out of the organization toward the end-consumer. These functions are increasingly being outsourced to other organizations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of inventory management concepts. The purpose of inventory management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.

Several models have been proposed for understanding the activities required managing material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply-Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF) Supply chain activities of hyperstar can be grouped into strategic, tactical, and operational levels of activities.

Strategic
Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. Products design coordination, So that new and existing products can be optimally integrated into the supply chain. Information Technology infrastructure, to support supply chain operations. Where to make and what to make or buy decisions.

Tactical
Sourcing contracts and other purchasing decisions. Production decisions, including contracting, locations, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.

Operational
Daily production and distribution planning, including all nodes in the supply chain.

 Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Outbound operations, including all fulfillment activities and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers. Performance tracking of all activities.

Integrated Inventory Management

An integrated inventory management streamlines processes and increases profitability by delivering the right product to the right place, at the right time, and at the lowest possible cost. Unlike commercial manufacturing supplies, clinical supplies planning is very dynamic and can often have last minute changes. Availability of patient kit when patient arrives at investigator site is very important for clinical trial success. An integrated supply chain can reduce the overproduction of products by efficient demand management, planning, and inventory management. Implementation of ERP system (such as SAP) in R&D can have major ROI by an efficient supply and inventory management system and also by reducing overproduction.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in-process between locations. There primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost

anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is long term in the sense that top management sets goals. However, most researchers have approached the management of inventory from short term perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.

Inventory Control Management Inventory Database

An important component of inventory planning involves access to an inventory database. It is a structured framework that contains the information needed to effectively manage all items of inventory, from raw materials to finished goods of his own brand which is First. This information includes the classification and amount of inventories, demand for the items, cost to the firm for each item, ordering costs, carrying costs and other data. The task of inventory planning can be highly complex. At the same time it rests on fundamental principles. In doing so we must understand and determine the optimal lot size that has to be ordered. The EOQ (economic order quantity) refers to the optimal order size that will result in the lowest total of order and carrying costs and ordering costs. By calculating the economic order quantity the firm attempts to determine the order size that will minimize the total inventory costs. In examination of the two curves reveals that the carrying cost curve is linear i.e. more the inventory held in any period, greater will be the cost of holding it. Ordering cost curve on the other hand is different. The ordering costs decrease with an increase in order sizes. The point where the holding cost curve i.e. the carrying cost curve and the ordering cost curve meet, represent the least total cost which is incidentally the economic order quantity or optimum quantity.

Inventory Flow
The management of logistics is concerned with the movement and storage of different product, materials and finished products. Logistical operations start with the initial shipment of a material or component part from a supplier and are finalized when a manufactured or processed product is delivered to a customer. From the initial purchase of a material or component, the logistical process adds value. By moving inventory when and where needed. Thus the material gains value at each step. For a large manufacturer, logistical operations may consist of thousands of movements, which ultimately culminate in the delivery of the product to an industrial user, wholesaler, dealer or customer. Similarly for a retailer, logistical operations may commence with the procurement of products for resale and may terminate with consumer pickup or delivery. The significant point is that regardless of the size or type of the enterprise, logistics is useful and requires continuous management attention.

Inventory Related Cost

Tax Storage Capital Insurance Obsolescence Ordering Communication Processing, including material Handling and packaging Update activities, including Receiving and date-processing

BASIC INVENTORY DECISIONS

There are two basic decisions that must be made for every item that is maintained in inventory. These decisions have to do with the timing of orders for the item and the size of orders for the item.

Basic Inventory Decisions

How much?
Lot sizing decision Determination of the quantity to be ordered.

When?
Lot timing decision Determination of the timing for the orders.

Relevant Inventory Cost

Relevant Inventory Costs

Item Costs
Direct cost for getting an item. Purchase cost for outside orders, manufacturing cost for internal orders.

Holding Costs
Costs associated with carrying items in inventory. Storage and other related costs.

Ordering Costs
Fixed costs associated with placing an order (either a purchase cost for outside orders, or a setup cost for internal orders).

Shortage Costs
Costs associated with not having enough inventory to meet demand.

Cost of carrying inventory

Carrying material in inventory is expensive. A number of studies indicated that the annual cost of carrying a production inventory averaged approximately 25% of the value of the inventory. When a firm uses money to buy production material and keeps it in the inventory, it simply has this much less cash to spend for other purposes. Money invested in external securities or in productive equipment earns a return for the company. Thus it is logical to charge all money invested in inventory an amount equal to that it could earn elsewhere in the company. This is the opportunity cost associated with inventory investment.

Insurance cost
Most firms insure the assets against possible losses from fire and other forms of damage.

Property taxes
This is levied on the assessed value of a firms assets, the greater the inventory value, the greater the asset value and consequently the higher the firms tax bill.

Storage costs
The warehouse is depreciated every year over the length of its life. This cost can be charged against the inventory occupying the space.

Obsolescence and deterioration

In most inventory operations, a certain percentage of the stock spoils, is damaged, is pilfered, or eventually becomes obsolete. A certain number always takes place even if they are handled with utmost care. Generally speaking, this group of carrying costs rises and falls nearly proportionately to the rise and fall of the inventory level.

Supply chain vendor management inventory

Allows supply chain partners to share critical order, demand and inventory information in real-time and uses both integrated and web based applications to reduce administration costs, shortening cycle times and help lower inventory levels. Our unique, managed supply hub requires little upfront investment, yet quickly starts delivering high performance in real time.

Inventory Control Overview Normal Inventory

As it sounds, this type of inventory item will be used for the majority of your parts. It will correctly track the inventory received and sold on a first in first out basis, will handle cost of sales, and will warn you when you're out of stock.

Non-Inventory Type
This is used for selling things that are not really inventory items. For example, you could be selling warranty, but because you don't have warranty in a box to sell, and you'll never run out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale adjustments with non-stock items. The system will not calculate how much you paid for the item, and therefore will not try to remove that value from inventory in the general ledger. If you are selling something that does cost you money, you will have to handle these details manually.

Labor Parts
You (probably) don't have technicians hanging from hooks in your back room, so like non-inventory items, the system will not try to remove them from inventory when you sell a labor item. The two differences between Non-Inventory items an Labor items are that you can optionally have the system ask you for the technician code that did the work so that you can print reports showing who did what work. As well, the system

will optionally ask for a comment to explain what was done so that the description of the service work can be printed on the invoice. Note too that you can optionally keep track of how much time was spent and how much time was billed for on a per job basis. At the end of the month, you can then print technician productivity reports to compare total time spent compared to billable hours. In the automotive industry, some mechanics can do the work faster than is what is billed because the billing is based on industry standards.

Consignment Items
Consignments can be used to keep track of inventory that you don't own, but at the time you sell it, you must pay for it. You'll be able to generate several reports, including a list of inventory that is on consignment but not sold and a list of inventory sold on consignment, but not yet paid for.

Floor Plan Inventory

Floor planning is very similar to consignment, except that you take possession and own the inventory when you receive it, but you don't have to pay for it until it's sold, or until it's been in the store for a negotiated period of time. However, you do own the inventory and do have to pay for it sometime.

Product Inventory
Products are items such as food, home appliances that you might service after selling them to the customer. That is, they are an item in the database that can be sold, and when sold, are automatically added to the customer's list of products that can be worked on. Examples are food, recreational vehicles, fridges, air conditioners, Computers etc.

Serialized Inventory
Those items that need to be tracked by their serial numbers can be marked as serialized inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized. Note that if you plan on servicing these items in the future and keeping track of all work you do on them, they should be entered as products instead of serial numbers.

Advantage Inventory Control

The Inventory Control gives you the ability to handle your inventory your way. As one of the most flexible and comprehensive modules in the Advantage, you can choose the level of control that best suits your specific business needs. Your inventory can be valued on a LIFO, FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory, parts allocations, vendors, warehouses and an audit trail. The system can also track the quantity sold for each item for the last 12 months and, using this data, provides a sales analysis report to help you better manage your stock.

INVENTORY MANAGEMENT TECHNIQUES:

In managing inventories, the firms objective should be in consonance with the shareholders, wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in unbalanced inventory and inflexibility. The firm may sometimes run out of stock and sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable. To manage inventories efficiently, answers should be sought to the following two questions: How much should be ordered? When should it be ordered?

The first question, how much to order relates to the problem of determining economic order quantity (EOQ) and answered with an analysis of costs of maintaining certain level of inventories. The second question, when to order, arises because of uncertainty and is a problem of determining the reorder point.

ECONOMIC ORDER QUANTITY (EOQ):

One of the major inventory management problems to be resolved is how much inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it has to be purchase on replenishment. If the firm is planning a production run, the issue is how much production to schedule (or how much to make). These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic order quantity (or economic lot size). Determining an optimum inventory level involves two types of costs: (a) ordering costs and (b) carrying costs. The economic order quantity is that inventory level that minimizes the total of ordering and carrying costs.

Ordering Costs:
The term ordering costs is used in case of raw materials (or supplies) and includes the entire costs incurred in the following activities: Requisition Purchase Ordering Transporting Receiving Inspecting Storing (store placement)

Ordering costs increase in proportion to the number of orders placed. The clerical and staff costs, however, do not have to vary in proportion to the number of orders placed, and one view is that so long as they are committed costs, they need not be reckoned in computing ordering cost. Alternatively, it may be argued that as the number of order increases, the clerical and staff costs tend to increase. If the number of orders are drastically reduced, the clerical and staff force release now can be used in other departments. Thus, these costs may be included in the ordering costs. It is more appropriate to include clerical and staff costs on a pro rata basis. Ordering costs increase with the number of orders, thus the more frequently inventory is acquired, the higher the firms ordering costs. On the other hand, if the firm maintains a large inventory levels, there will be few orders placed and ordering costs will be relatively small. Thus, ordering costs decrease with the increasing size of inventory.

Carrying Costs:
Costs incurred for maintaining a given level of inventory are called carrying costs. They include storage, insurance, taxes, deterioration and adolescence. The storage costs comprise cost of storage space (warehousing cost), stores handling costs and clerical and staff service costs (administrative costs) incurred in recording and providing special facilities such as fencing, lines, racks etc. Carrying costs vary with inventory size. This behavior is contrary to that of ordering costs which decline with increase in inventory size. The economic size of inventory would thus depend on trade off between carrying costs and ordering costs.

Re-Order point:
The re-order point is that inventory level at which an order should be placed to replenish the inventory. To determine the re-order point under certainty, we should know:

Lead time Average usage Economic order quantity

Lead time:
Lead time is the time normally taken in replenishing the inventory after the order has been placed. By certainty we mean that uses and lead time do not fluctuate. Under such a situation reorder point is simply that inventory level which will be maintained for consumption during the lead time .i. e, Reorder point = Lead * Average usage.

Safety stock:
The demand for material may fluctuate from day to day or from week to week. Similarly, the actual delivery time may be different from the normal lead time. If the actual usage increases or the delivery of inventory is delayed, the firms can a problem of stock-out which can prove to be costly for a firm. Therefore, in order to guard against the stock out, the firm may maintain a safety stock. It is the minimum or buffer inventory as cushion against expected increased usage and/or delay in delivery time.

PRICING OF RAW MATERIALS:

Several methods are used for pricing inventories used in production. The important ones are: First-in first-out(FIFO)method Last-in first-out(LIFO)method Weighted average cost method Standard cost(price)method

FIFO method:
This method assumes that the order in which materials are received in the stores is the order in which materials are issued from the stores. Hence, the material which is issued first is priced on the basis of the cost of material received earliest, so on and so forth. The chareacteristics of this method seemed to be: 1. The pricing of material is perhaps consistent with the practice of issuing oldest material first followed in many manufacturing organization. 2. The value of material in stock is fairly closed to the current cost. 3. In the period of rising prices, the charge to production is low. This tends to inflate reported profits, increase tax burden & push up dividends-as a consequence, the firm is sapped financially.

LIFO method:
This method is the opposite of FIFO method. It assumes that the material which is acquired last is issued first. Hence material issues are priced on the basis of the cost of most recent material purchases.

Weighted Average Cost Method:

Under this method, material issues are priced at a weighted average cost of materials in stock. To get an up-to-date weighted average cost figure, a new weighted average cost is calculated each time a delivery is received.

Standard Price (cost) Method:

Under this method a standard price is predetermined. When materials are purchased the stock amount is debited with the standard price. The difference between the actual price & standard price is carried to a variance account. Materials issued are charged as per the standard price. There is no need for specific prices attributable to specific issues of materials. The short comings of this method are:

(i)

determining the standard price may be somewhat difficult, particularly when prices tend to increase somewhat unpredictably or are characterized by wide fluctuations.

(ii)

(ii) the issue of how variance should be treated may be thorny.

HYPERSTAR
Here we will include hyperstar as an example of inventory management in our report where inventory management is success applied and running in an efficient manner. They have the proper rules and regulations and have proper knowledge to adopt this inventory system.

Hyperstar Pakistan is the most dynamic, fast-moving and exciting hypermarket chain! The company has global expertise which helps them offer the shoppers here in the Pakistan the same quality, variety and value-for-money that is provided all over the world. It is recognized as one of the most active shopping concept developers throughout the region, the Group first introduced the hypermarket model to the Middle East in 1995. Majid Al Futtaim Hypermarkets offers shoppers the same quality, variety and value-for-money that have made the brand a household name to millions over the world. Hyperstar reputation has been built, above all, on the quality and freshness of the products, customer service and competitive prices. Selling goods with quality choices in food, personal care, communication, leisure, entertainment and household goods while continually meeting the needs of local consumers in 2009, with the ranging from needed to refrigerate food to clothes under one roof, is trendy as shoppers pick specialized stores. Hyperstars own retail brands are a significant medium for brand differentiation and customer loyalty, contributing substantially to the organizations growth in sales. Hyperstar massive buying power guarantees to cut costs and keep the prices low

- no wonder more than 2,000,000,000 people worldwide shop with us every year! As well as unbeatable value, we've also got unbeatable choice - you'll find over 100,000 items always in stock.

MAJOR CLIENTS OF HYPERSTAR

Uniliver Proctor and Gamble LG Nokia Samsung Dell HP Super Asia SONY Haier Mitsubishi Continental Biscuits Shakargang Nestle Sufi Industries Bata Service First 1 Coca Cola PepsiCo FritoLays And many many more.

MAJOR COMPETITORS OF HYPERSTAR Metro Cash & Carry Marko Wholesale Canteen Stores Department (CSDs) Green Valley Premium Super Market Al-Fattah Super Store Others small level super stores

The inventory management process by Hyperstar

When we asked, the on duty floor manager of the Hyperstar store told that they maintain stocks of FMCG as well as electronic & cosmetics goods as per the requirement of the customers. The consumption of FMCG is informed to be very high. The store has installation of computerized inventory management system. A database of inventories is automatically maintained by the system. It keeps track of what comes in and what goes out. As soon as the inventory reaches the re-order point, the system automatically reminds them to order that particular commodity. They, then place the required order using telephonic and internet communication. The On Duty Floor manager illustrated us the inventory management by giving us the examples of three most common used FMCG. FMCG means Fast Moving Consumer Goods. Three most selling FMCG goods have been identified and have been studied for the inventory management;

Min Shampoo Sunsilk Garnier Head and shoulder Dove Soap Lux body wash Lux Life boy Dettol Dove Toothpaste Close-up Colgate Pepsodent 5 5 5 5 10 10 10 10 10 5 5 5

Average 20 35 25 30 90 90 80 110 90 50 60 40

Max 25 40 30 35 100 100 90 120 100 55 65 45

EOQ of GENERAL STORE: The manager told us that there is no exact or rigid EOQ; instead the quantities short of maximum units are placed as an order quantity. Ordering Costs: Order is placed through Online Inventory Systems, Telecommunication, Internet and others means of communication. So the costs incurred in these means of communication are the ordering cost for hyperstar. Carrying costs: Carrying Cost of the goods is very high at hyperstar. Half of the store length is the warehouse located in the store premises. The Carrying costs of hyperstar include; Warehouse Rents Refrigeration Plants Workers Expiry of Products Breakage Inventory Control System.

Reorder point: The Computerized inventory management system automatically reminds to place an order when the inventory reaches the minimum point.

Lead time: There are more than 5000 grocery items in hyperstar as well as electronic and cosmetics. So the lead time is different in different products which were managed by inventory control system. The common lead times for FMCGs are 48 hours. Safety stock: The store does not have any such concept; instead it does have a minimum and a maximum limit. It just tries to maintain the maximum limit of the stock.

References:

http://www.managementstudyguide.com/inventory-management.htm http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_mp22.pdf http://en.wikipedia.org/wiki/Inventory http://www.barcodesinc.com/articles/what-is-inventory-mangement.htm http://www.terratechnology.com/?gclid=CNH0oaaEmrACFcNN3wodkjeLZw http://www.terratechnology.com/?gclid=CNiBsamEmrACFcRF3wodhnHAZQ http://www.wikinvest.com/wiki/Inventory_management http://www.advanceware.net/ http://www.motorola.com/Business/XUEN/Business+Solutions/Industry+Solutions/Retail/Inventory+Management+Solutions+fo r+Retail_Loc:XU-EN,XN-EN,XC-EN,XM-EN,XE-EN,PK-EN,XF-EN http://www.lesssoftware.com/LessSoftSolutions?utm_medium=email&utm_source=ActOn+Software&utm_content=email&utm_campaign=null&utm_term=Solutions&cm_mm c=Act-On%20Software-_-email-_-null-_-Solutions http://www.apics.org/ http://www.numarasoftware.com/footprints/inventory-management/ http://www.inflowinventory.com/ http://www.hyperstarpakistan.com/