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Supply Network Management: Assignment 3 (20 points)



To figure out how big is the saving potential of company’s inbound pro- cess and inventory management. What kind of activities and strategies should be used achieving this saving potential?

Starting point:

The idea of this demo –material is to give a description about the busi- ness and its profitability when all costs of the inbound process and in- ventory are taken into account and directed to material management operations. By going through and analyzing the given data, it is possible to point out what kind of activities should be executed for improving and developing the demand-supply chain from the company’s profita- bility point of view.


Demo –company operates in the manufacturing industry, but it has trading business as well. The data is taken from trading business unit, Kitchen Trading. Concerned business unit (Kitchen Trading) is a part of the Industrial Partners Sweden –group. Kitchen Trading is an independ- ent accountable unit. Sales of Kitchen Trading is 10,1 M€ and the total costs of the Inbound –process 152,2 k€.

Description of the company:

Kitchen Trading operates in Sweden, in the industry area called Örebro. Kitchen Trading unit supports the business of Industrial Partners Swe- den by providing trading operations to the group. Kitchen Trading’s task is to supplement the assortment of Industrial Partners Sweden. Cus- tomers use Kitchen Trading’s products in households and institutional kitchens for baking and cooking. An assortment contains e.g. different kinds of cake tins. The products are finished products ready in their sale packages and the products are delivered by using traditional import and wholesale principles.

The customers of Kitchen Trading are both national grocery chains and institutional kitchens. Purchasing orders are executed based on reorder points. Detailed demand forecasts from customers are difficult to get so

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the demand is forecasted in co-operation with the sales department. Customers require that the products must be delivered in 24-48 hours.

The suppliers of Kitchen Trading are mainly located in EU-area (Finland, Germany, UK). Term of delivery in purchasing is mainly DAP (Delivered at Place / Incoterms 2010). The warehouse of Kitchen Trading is in the same building as the raw material warehouse of Kitchen Supplies.


Analyze the company’s Inbound –process by using SCM Best Practice application. During the analysis answer to following questions.

1. Costs of the inbound process and inventory have been entered to the system. Study the cost structures of inbound process and inven- tory. (1 point)

Total cost of inbound process?

Total cost of inventory and warehouse space?

Combined costs of above factors? (the current situation before your analysis)

2. Study ABC / XYZ and ABXY -categories. What kind of decisions and conclusions can you do about current inventory levels and optimum inventory levels? (2 points)

3. How big are active stock and passive stock? Why passive stock is more relevant than active stock? (1 point)

4. How many products (%) have overstock, understock or accepted stock? (1 point)

5. What is the capital cost of overstock? (1 point)

6. Define five products whose service level is the weakest (understock items) and propose the needed actions for the development (3 points)

7. Define five products whose overstock is the highest and propose the needed actions for the development (3 points)

8. Why is it so important that the products must be analyzed within two dimensions? By spent money (ABC) and by transaction times (XYZ). (2 points)

9. What kind of products (from purchasing point of view) are catego- ries abxy, abZzz, cdxy, cdZzz and Ezz0? What kind of purchasing strategies would you recommend (2 points)

10. How big the saving potential is in inbound -process (process costs and inventory costs)? How this saving potential can be executed in practice? (4 points)

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Write a report about your findings. Include all your answers into fi- nal report. The layout of your report has to follow the project re- porting instructions of JAMK University of Applied Sciences. The link to JAMK reporting instructions is available in your Optima work- space. If the reporting instructions are not followed, 20 % of points will be reduced.

The return date for this assignment is 13.12.2015.

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