Inventory Management

Industry practices in various businesses

Group 2, Section A

Akash Sahu Amit Singhania Megha Agarwal Naveen Agarwal Preetisudha Pandab Pulkit Agrawal

Outline:
Stationery Store Grocery store Pharmaceutical Store Retail Chain
Industry practice Recommendations

Industry practice Recommendations

Industry practice Recommendations

Industry practice Recommendatio ns

Stationery store: Geeta Stores

Wholesale Business Located at Mal Godown, Cuttack Items : Paper, Pen, Pencil, erasers etc Around 100 SKUs Procurement: -Distributors and Local Wholesale merchants Manpower: 3 staff members

Inventory Management

Around 3 months of inventory (excepting for paper reams)

To avail discounts on bulk purchase Leverage upon stock outs of the competitors Use of economies of scale in transportation and storage

Rent is of fixed floor space (Rs 1500) Godown is at a distance from the shop Re-order point -10 days of inventory Sale of Paper is by FIFO

Issues in current management

Over stock costs Irregular Stock tally

Time loss in getting goods from warehouse Losing out potential customers due to unavailability of specific products.

Recommendations
Proper monthly demand estimation Bulk purchase should be avoided Historical data should be maintained to aid demand estimation Periodical stock tally Opting for a nearer warehouse

Grocery Store: SMKP Store

Thirty years old business enterprise. Located at Buxi bazaar, Cuttack. SKUs range 900-1000 Staff members 10. Monthly Turnover Rs 15 to 17 Lakhs Total Area 3200 sq. ft. (1000 sq. ft. for shop and 2200 sq. ft. for storage) Category of items Grocery items & FMCG items Fastest Moving Items Grocery items like rice, pulses etc

Business process involved in inventory procurement

Grocery Items:
Procured on daily basis from Malgodown, Cuttack from around 10-15 fixed no of shops based on the quality and price. FMCG Items: Agents of the distributor come and take the orders weekly and deliver the items in house accordingly. Maintain 10-12 days of inventory

Key issues

Damage of Oil pouches, detergents packets during procurement Breakage of Ketchup bottles due to improper handling and bad packaging Unsold seasonal items can be returned to the vendor only in the next cycle, this leads to undesirable loss of shelf and inventory space and also immobility of funds. Stock check is done on an yearly basis ( Every Diwali ) All accounting and ledger work is done manually

Recommendations
Maintain historical data to predict demand for seasonal products. Use of accounting software to track sale and purchase of goods more efficiently Low level inventory for products like oil, detergent and ketchup bottles to reduce the risk of breakage.

Medical Store: Medicine House, Bhubaneswar

Medicine house is a standalone medicine shop in ID market, Bhubaneswar. Owner: Mr. Pramod Patra

Overview of industry
Large number of drugs and their varieties Several alternatives for the same salt. License needed to manufacture and store drugs Manufacturer provides after supply services unconditional exchange of expired drugs Doctors prescription alters the demand of the drug. The consumer is usually indifferent to the brand. In some generic drugs the brand (eg. Himalaya, Dr. Reddy) may be of importance Several complementary items (eg. diapers)

Inventory decides your Business

Huge variety Countless number of Retailers (counters) The sale of an individual medicine per shop is not great. The over all sale of medicine at each shop is high Small inventory of all things vs Large inventory of some things

Large inventory of certain drugs Small inventories of a many drugs

As Variety increases volumes decrease

Carry and Forward : One per company

Stockist : More in number

Retailer: huge number of counters

Medicine House: An Insight

Stand alone shop in ID market, Bhubaneswar Monthly Sales average to approximately between 4 and 5 lakh Number of employees is 4 About 65000 SKUs listed in the catalogue At the time of visit about 20000 SKUs were present in the inventory. The owner has plans of expansion to 4 or 5 shops within the city in the near future. Plan of starting a chain of retail pharma shops if the plan works out.

Inventory at Medicine House

Inventory is important: The customer is not ready to wait Other medical stores offer the medicine at all times A customer unsatisfied is a customer lost in this business
Method of Procurement: Daily procurement Supplier is locally available A safety stock per drug is maintained Limited area in shop for storage of medicines. Storing elsewhere is illegal Inventory is usually only enough to satisfy the demand for 2 to 7 days, depending on the drug

Computerized system
Medicine House uses a computer software to track supplies and sales The batch number is entered along with the expiry date for each purchase

The sales also follow a data entry in the system, except in case of many customers waiting
The system provides reports of each item. Also alerts about the approaching expiry dates

Arrangement of Inventory
All inventory on shelf. Is available for sale Use of refrigerators for certain items

Medicine house specifics: All medicine arranged in Alphabetical order Bottles and strips arranged in one place Separate rack for expired and near expiry drugs Some items also placed on the counter.

Mr. Patra says

A medicine like Cinarest is so popular that 50 strips may be sold in a day or two. A thermometer may, on the other hand, take months before running out of stock.

100%

80%
60% 40% 20% 0% drugs in inconsistent demand drugs in continous demand

How much inventory to keep?

Suppliers are locally available Suppliers maintain a huge inventory Medicine House buys from 4 or 5 different suppliers The supply is usually stable. Medicine are exempted from any strike or closedown

Small level of inventory maintained. Safety stock determines the order for next day Extra order may be placed for fast moving drugs. Staff keeps an eye on the doctors prescriptions and estimated the demand of a drug. Orders are altered based on this observation.

Recommendations
Use FIFO system effectively Keep the alphabetical system of placing items intact. This will make it easier for the new staff to locate the medicines Manage the drugs in separate plastic boxes to separate strips from mixing up. Use a queue system in each box for implementing the FIFO system. The queue system if implemented will also make the inventory verification easier. Keep faster moving goods in easily accessible locations.

Retail Chain: Big Bazaar, Patia. Bhubaneswar

Maruti Mall, Big Bazaar is located at KIIT square. 36000 sq. feet in area 80 employees

BIG BAZAAR
Organization Structure

Front end divided into several divisions

Food Bazaar, Mobile, Mens Wear, Ladies Wear, Kids Section, Electronics.

Back end divided into 3 teams

Inventory Management/Warehouse team The Category Team, The Commercial team

Inventory Management at Big Bazaar

The operational strategies for Food Bazaar and the rest (which they refer as Big Bazaar) are highly segregated

Big Bazaar

Food Bazaar

The main difference

Food Bazaar
Local vendors & distributers
Daily inventory counting

Big Bazaar
Centralized DC Quarterly inventory counting

Big Bazaar
The inventory procurement is done on a daily basis No individual warehouses for the individual stores A central warehouse at Kolkata, which distributes to the eastern zone Lead time of about 60 hours

In case of stock out they check for availability in other branches

Upon arrival of inventory entries are made in the system, a software called Auto Replenish System

Inventory Management at Big Bazaar

Inventory directly moved to the shelves on the display floor Layout decided by a Planogram

They try to maintain a FIFO method of inventory consumption, but considering that its a self service store that is not much under their control Average sales per day calculated based on the sales last 3 months
Minimum Base Quantity is used

Big Bazaar: Inventory management during peak season

During super sales (like during 26th Jan), a temporary warehouse is maintained for all the 3 stores in Orissa combined

Located on Kolkata

Temporary warehouse
Bhubaneswar Supplies to 3 outlets in Orissa

Heavy rush during peak season Prevents stock outs

Distribution centre

Big Bazaar outlets

Inventory Management at Food Bazaar

Daily procurement from local vendors Vegetables and fruits are fastest moving items whereas imported chocolates are the slowest moving Other items like Maggi, Biscuits are procured from local distributors Inventory level of 7 days plus safety stock of 2 days Average sales per day is calculated based on the sales last 3 months Minimum Base Quantity = Avg. Sales per Day * 9

Inventory Management
Stock verification is done manually Sales person checks for the expiry dates of individual items manually No special process for peak season demand Estimates done according to last season and extra inventories are ordered Inventory counting is also a manual process, done quarterly

Recommendations
Expiry date verification can be easily automated by the software they are already using i.e. Auto Replenish System Formalization of supply chain process in case of Food Bazaar Use of Cycle counting in place of quarterly counting

THANK YOU