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Submitted to Dr. P. K. Dash Associate Professor Quantitative Techniques and Operations Management IMI-Bhubaneswar
Introduction
Ever been to a store and not able to find the exact product that you were looking for? Or you found the item you were looking for but the quantity you want to purchase is not there? Or perhaps the product you were about to purchase has expired? All of us have been through this situation at one point or another and these can be seen at the local kirana store or at the supermarket. And these situations are the result of a poor inventory management system. An inventory can be defined as a stock of goods which is held for the purpose of future production or sales. The stock of goods may be kept in the following forms: 1. Raw Materials 2. Partly finished goods 3. Finished goods 4. Spare parts etc. The objective of an inventory problem is to minimize the total (actual or expected) cost or to maximize (actual or expected) profit.
Inventory Management:
Inventory management can be briefly described as: Acquiring an adequate supply and assortment of merchandise from which customers can buy. Providing safety stocks to meet unexpected demand or delays in inventory replenishment. Maintaining clear, correct, and current records. Purchasing the proper assortment of goods in quantities that will maintain inventory levels consistent with business requirements, while providing adequate safety stocks.
Reducing excessive inventories promptly, so that the dollars realized from clearing overstocks can be invested in merchandise with a greater market potential.
Both questions can be answered by establishing an inventory target for any item you carry expressed as so many days', weeks', or months' sales
The Controlled Variables The variables that may be controlled, separately or in combination are following: 1. The quantity acquired By purchase, production, or some other means. The decision maker may have a control over the production or purchase level. 2. The frequency of timing of acquisition The decision maker may have control over how often or when the inventory should be replenished. 3. The stage of completion of stocked items The decision maker may have a control over the stage which the unfinished items are held so that there is no delay in supplying customers. The Uncontrolled Variables The variable that may not be controlled in an inventory problem are divisible into cost variables and others. Cost Variables (or the costs) involved in Inventory Problems: The main cost variables involved in inventory problems are as follows: Holding or storage cost The costs associated with the storage of the inventory until it is or used are known as the holding or storage costs. This cost is directly proportional to the various components of the holding costs are as follows: o Handling costs Which include the cost of labor, transportation charges etc. o Rent of the space or interest and the cost of depreciation on owned space. o Cost of the staff to keep records. o Insurance and taxes. o Interest on the money locked for inventory. o Deterioration cost etc. Which arises in the case of fashion items or items that changes chemically during storage such as medicines, foods etc.
Set up (or replacement or ordering) costs This is the cost associated with the placing of an order for purchasing goods, or it is the cost of setting a machine before it starts production. This cost may depend on the quantity of goods purchased because of price breaks or quantity discounts.
Besides these cost variables there are other variables that may not be controlled in an inventory problem: Demand Demand is the number of items required per period which is not necessarily equal to the amount sold as some demand may go unfulfilled because of storage or delays. The demand may be of two types: o Deterministic Demands If the number of items required (i.e. demand) in a subsequent period of time is known exactly then such demand are called deterministic demands o Non deterministic Demands If the demands over a subsequent period of time is not known with certainty then such demands are called non deterministic or probabilistic demands
Lead Time The time gap between the time of placing an order or the starting of the production and the time of arrival or delivery of goods to the inventory is called Lead Time. Also the time gap between the time of demand and the time of filling the demand from the inventory is called lead time. If this time is known (constant) and not zero then one may order in advance by an amount of time equal to the lead time. If it is a variable i.e., known only probabilistically than the question of when to order is difficult.
Amount Delivered The supply of goods may be instantaneous or spread over a period of time.
Need of Inventory:
The inventory in any business is maintained to decrease the set up costs and the shortage costs. If the demands of the customers are not fulfilled then in then it may result in the loss of their good wills. If the orders are cancelled then it results in the loss of the business. Thus, there is always a need of inventory for the smooth running of any business.
Disadvantages: i. ii. iii. iv. v. Warehouse rent. Interest on invested capital. Physical handling. Accounting Depreciation and determination.
Some general notations used in inventory models: We shall use the following general notations in inventory models: I = the cost of carrying one rupee in inventory for a unit time. C1 = Holding cost per unit time. C2 = Storage cost per unit time. C3 = Set up cost per production run. q = Lot size per production run. (I.e. The quantity produced per production run) r = Demand rate. K = Production rate. C = Average total cost per unit time. t = Time interval between two consecutive replenishments of inventory. z = Order level or stock level. L = lead time. q*, t*, z* = Optimal values of q, t, z respectively for which the cost C is minimum.
Deterministic models:
Economic Lot size Model: The most common inventory problem faced by industry concerns the situation where stock levels are depleted with time and then are replenished by the arrival of new item. The situation is given in the following economic lot size models. The inventory problems in which the demand is assumed to be fixed and completely predetermined are known as the Economic Lot Size Problem or Economic Order Quantity (EOQ) Problem.
Model I: Economic Lot Size Model with Uniform Rate of Demand Infinite Production Rate and having no Shortages To determine an economic lot size formula and the minimum average costs under the following assumptions. Demand is uniform at the rate of r units per unit time. Production is instantaneous. (I.e. Production rate is infinite). Lead time is zero. C1 = Holding cost per unit time. C3 = Set up cost per production run. Shortage costs are not allowed
BIG BAZAAR
Big Bazaar generally deals in national level brands like Lee, Levis, etc. Other than this it also deals in some Private label brands DJ&C in apparel, Korean electronics etc. Other items carried by Big Bazaar are FMCG, FOOD & NON- FOOD junction , Staple items , fruits & vegetables , fashion & apparels ,chill section home decorator , footwear ,book zone, CDs, etc.
purchase order, in warding of goods etc. REM (Rapid eye movement) used at POS (point of sale) to generate the cash memos. It keeps record of goods sold and uploads the information to SAP.
Demand Forecasting:
Sales of past sales of same quarter are taken. Weekly consumption is calculated on the amount to be ordered = (Weekly consumption+ safety stock amount depending upon the no. of days supplier supplies in the week).
In Warding Process:
It includes physical inspection, quantity check, giving bar codes and making entry in system.
However they always keep in mind the transit time of 2 days. Vegetables are taken on a daily basis, form local vendors. The Re-order point is 50%. Margins: Margins Mark down Methods: In this method we have MRP and we have to calculate the CP. Mark down Method: Here we provide with the CP and we have to calculate the MRP of the product. Big Bazaar purchases goods on MD margins. MAP (Moving Average price): Increase in price: When the price is increased then the MAP increases which shows the loss in the sale of every old stock and profits in new stock Decrease in price: When the price decreases then MAP decreases which shows profits in case of old stock and loss in the new stock. Fill Rate: It is used to evaluate the efficiency of suppliers on the bases of goods supplied as per the order. Stock Take: It is the process of matching physical quantity of stock with the system quantity. Stock take finds out the amount of shrinkage at that period. Shrinkage is the difference between the system inventory and physical inventory.
Product Categories in Big Bazaar Big Bazaar generally deals in national level brands like Lee, Levis etc. Other than this it also deals in some Private label brands DJ&C in apparel, KORYO in electronics etc. Then we asked about the product categories , that are :FMCG, FOOD & NON- FOOD junction , Staple items , fruits & vegetables , fashion & apparels ,chill section , home decorator , footwear , book zone, CDs etc.
Decision of How Inventories are Maintained Then coming to how the store manager decides the level of inventory, the store manager inspects the stocks time to time and also the demands of customers. Manager maintains the Stock in & Stock out, so that he can decide the level of inventory. He also has seen the trends in the requirement of inventories, as for e.g. he told that apparels are ordered approximately after 45 days. For every sample of clothes they have a backup of 10 pieces. Also Big Bazaar uses the concept of Minimum Base Unit (MBU) in which the minimum number of stock is maintained for every item present in the store. For example, if the stock for any item goes below 50, then immediately an Order Quantity report is automatically generated by the system which is sent to the vendor who then provides the required stock of items. Apart from these, the Goods Received Report (GRR) is maintained to check for the items which are actually provided by the different vendors. However in case, if more number of pieces is required, they first ask other big bazaar location such as that of Patia etc. but if, even then they fail to meet the demands of customers, they go for Transfer of Interest. In this they prefer sending the c ustomers to pantaloons, as it is also of Future Group, instead of losing them. Besides these, the sales of items are affected by the seasons. For example, during winter the sales boost up and additional quantity is demanded from vendors. Recently Big Bazaar has undergone tremendous technological advancement, as its supply chain has become completely computerized. Once the product is sold, automatically, the computer sends the request for back up. Uncertain demands of customers The uncertain demands are met by either by getting it through other outlets of big bazaar or through transfer of interest, to other outlets of future group, like Pantaloons. Supply chain of perishable and imperishable goods Perishable goods like vegetables are maintained with great care. Vegetables are bought on daily basis on the basis of demand, and seasonal item. It is also ascertained that damaged vegetables are sold at a low cost to some other channels. Whereas imperishable goods like
utensils and staple goods and electronic items are brought from vendors. The distribution channel used in supply chain process is operated by Central Distribution Channel, from where goods are supplied to every Big Bazaar Store. The modes of transportation which are used in supply chain process are truck & rails, but in case of emergency, flights are also being used. The transportation is outsourced. Mainly the carriers for Big Bazaar are Quick & Safe, Gati, Deluxe Roadways, and TNT.