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UNIVERSITY OF CENTRAL PUNJAB

OPERATIONS

MANAGEMENTSHEIKH M RUMMAN HAROONM FARHAN NAEEM

SYED BILAL HASSAN

Submit To

Prof Ghulam Rasul Awan

Final Project

on

Inventory Management


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ACKNOLEDGEMENT

We are very thankful to our respected teacherDr.

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.


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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.


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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 alongwith 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


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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 capitaltied 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


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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


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consequences. Some plants have centralized stock holding across sub-processes which

makes the situation even more acute.

The basis of Inventory accountingInventory 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.


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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 ofinformation 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 andmaking sure that the right quantities are ordered to replace stock.

Logistics:


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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 therequired 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


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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.


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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 improvementssuch 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 bestpractices throughout the enterprise.

Operational

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

chain.
http://en.wikipedia.org/w/index.php?title=Supply-Chain_Council&action=edithttp://en.wikipedia.org/w/index.php?title=Supply-Chain_Council&action=edit


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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 ManagementAn 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


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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), controlpolicies --- 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 ManagementInventory 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 onfundamental 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.


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Inventory Flow

The management of logistics is concerned with the movement and storage of differentproduct, 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


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BASIC INVENTORY DECISIONS

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

of orders for the item.

Basic InventoryDecisions

How much? When?

Lot sizing decision

Determination of thequantity to be ordered.

Lot timing decision

Determination of the timingfor the orders.

Relevant Inventory Cost

Relevant Inventory Costs

Item Costs Holding Costs Ordering Costs Shortage Costs

Direct cost forgetting an item.Purchase cost foroutside orders,manufacturingcost for internalorders.

Costs associatedwith carryingitems ininventory.Storage andother relatedcosts.

Fixed costsassociated withplacing an order(either apurchase cost foroutside orders,or a setup cost

Costs associatedwith not havingenoughinventory tomeet demand.


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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 tothe rise and fall of the inventory level.


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Supply chain vendor management inventoryAllows 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. Ourunique, managed supply hub requires little upfront investment, yet quickly starts

delivering high performance in real time.

Inventory Control Overview

Normal InventoryAs 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 TypeThis 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 PartsYou (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


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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 printtechnician 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 InventoryFloor 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 InventoryProducts 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 beworked on. Examples are food, recreational vehicles, fridges, air conditioners,

Computers etc.


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Serialized InventoryThose 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 trackof 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?


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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)


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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 orderincreases, 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 relativelysmall. 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:


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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)methodLast-in first-out(LIFO)method

Weighted average cost method

Standard cost(price)method


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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 issuedfirst 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 asper the standard price.

There is no need for specific prices attributable to specific issues of materials. The short

comings of this method are:


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(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 thisinventory 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 thePakistan the same quality, variety and value-for-money that is provided all over theworld. It is recognized as one of the most active shopping concept developersthroughout the region, the Group first introduced the hypermarket model to the MiddleEast in 1995. Majid Al Futtaim Hypermarkets offers shoppers the same quality, varietyand value-for-money that have made the brand a household name to millions over theworld.

Hyperstar reputation has been built, above all, on the quality and freshness of theproducts, customer service and competitive prices. Selling goods with quality choices infood, personal care, communication, leisure, entertainment and household goods whilecontinually meeting the needs of local consumers in 2009, with the ranging from neededto refrigerate food to clothes under one roof, is trendy as shoppers pick specializedstores. Hyperstars own retail brands are a significant medium for brand differentiationand customer loyalty, contributing substantially to the organizations growth insales. Hyperstar massive buying power guarantees to cut costs and keep the prices low


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- no wonder more than 2,000,000,000 people worldwide shop with us every year! Aswell as unbeatable value, we've also got unbeatable choice - you'll findover 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


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The inventory management process by Hyperstar

When we asked, the on duty floor manager of the Hyperstar store told that theymaintain 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 theexamples 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 theinventory management;


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Min Average Max

ShampooSunsilk 5 20 25Garnier 5 35 40

Head and shoulder 5 25 30Dove 5 30 35

SoapLux body wash 10 90 100Lux 10 90 100Life boy 10 80 90Dettol 10 110 120Dove 10 90 100

ToothpasteClose-up 5 50 55Colgate 5 60 65Pepsodent 5 40 45

EOQ of GENERAL STORE:The manager told us that there is no exact or rigid EOQ; instead the quantities short ofmaximum units are placed as an order quantity.

Ordering Costs:Order is placed through Online Inventory Systems, Telecommunication, Internet andothers means of communication. So the costs incurred in these means ofcommunication 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 RentsRefrigeration PlantsWorkers

Expiry of ProductsBreakageInventory Control System.


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

Lead time:There are more than 5000 grocery items in hyperstar as well as electronic andcosmetics. So the lead time is different in different products which were managed byinventory 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 amaximum limit. It just tries to maintain the maximum limit of the stock.


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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/XU-

EN/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=Act-

On+Software&utm_content=email&utm_campaign=null&utm_term=Solutions&cm_mmc=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/
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_homepage/pub_mp22.pdfhttp://www.managementstudyguide.com/inventory-management.htm

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