INVENTORY MANAGEMENT AND DISTRIBUTION IN A RETAIL CHAIN

Page 1

Inventory Management And Distribution In A Retail Chain Overview of the Company Background of the ACI Ltd. ICI Plc of UK had a pharmaceutical business in Bangladesh. In 1992 the business was sold to management and the name of the Company changed to Advanced Chemical Industries (ACI) Limited. ACI inherited the rich ICI culture of product quality, customer service and social responsibility and continues to nurture. ACI is the first company in Bangladesh to obtain certification of ISO 9001 Quality Management System in 1995. ACI is also the first Company in Bangladesh to get certification of ISO 14001 Environmental Management System in 2000. ACI employees are proud of their work culture, business ethics and environmental consciousness. ACI values are embodied in its vision and mission statements. ACI quality and environmental concerns are clearly stated through declared policies. What was primarily a Pharmaceutical business in 1992 with a turnover of Tk.80 million with stagnant growth, the new management brought about fundamental changes in policies and has in year 2005 grown to over Tk. 3413.05 million in turnover through diversified business interest including personal care products, food products, animal health, agrochemicals and seeds in addition to gaining a strong position in Pharmaceuticals. ACI represents principals like AstraZeneca, UCB, Searle and Fujisawa in Pharmaceuticals business; Colgate-Palmolive, Heinz & Dabur in Consumer Products sector; Synzenta in Agrochemicals; Ranbaxy, Dabur, Wockhardt, Sanofi and Invesa in Animal Health sector. The trading subsidiary of ACI represents in Bangladesh principals like ICI, Exxon-Mobile, Bayer, and Stahl. Mission and Vision of ACI Mission: ACI’s mission is to enrich the quality of life of people through responsible application of knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-class products, innovative processes and empowered employees to provide the highest level of satisfaction to its customers. Vision: To realize the mission ACI will Endeavour to attain a position of leadership in each category of its businesses Attain a high level of productivity in all its operations through effective and efficient use of resources, adoption of appropriate technology and alignment with our core competencies Develop its employees by encouraging empowerment and rewarding innovation Promote an environment for learning and personal growth of its employees Provide products and services of high and consistent quality, ensuring value for money to its customers Encourage and assist in the qualitative improvement of the services of its suppliers and distributors Establish harmonious relationship with the community and promote greater environmental responsibility within its sphere of influence Overview of ACI Group Business Unit: 1. 2. 3. 4. 5. 6. 7. 8.

Health Care (Pharmaceuticals) Consumer Brands Agri -Business: Crop Care Public Health Animal Health Seeds ACI Motors Fertilizer


9. 2.3.2 Subsidiaries and Joint Ventures: 10. ACI Formulations Limited 11. Apex Leather Crafts Limited 12. ACI Salt Limited 13. ACI Pure Flour Limited 14. ACI Foods Limited 15. Premiaflex Plastics Limited 16. Creative Communication Ltd. 17. ACI Motors Limited 18. ACI Godrej Agrovet Private Ltd. 19. Tetley ACI (Bangladesh) Ltd. 20. Asian Consumer Care (Pvt.) Ltd. 21. ACI Consumer Electronics 22. ACI Logistics Limited Formations of ACI Logistics Limited To drive strategic synergy among all businesses management has decided to open a new window of business through which ACI can a make bridge between farmers and consumers. So with a view to getting the consumers class under direct umbrella of ACI initiatives have been taken for launching “Retail Chain Operations ‘ throughout the country and hence to give birth of the new company “ACI Logistics Limited” having brand name “Shwapno”. It was basically a dream to change landscape of general people lifestyle in terms of their shopping experience and people like farmers who do not get the right price of their selling products. Vision of ACILL To change the lifestyle of Bangladeshi consumers through responsive supply chain operations with a proposition of affordable relevant quality products . Values and Belief of ACILL


Competitive Advantage of ACILL

Brand Name of ACILL A product identity, or brand image are typically the attributes one associates with a brand, how the brand owner wants the consumer to perceive the brand - and by extension the branded company, organization, product or service. The brand owner will seek to bridge the gap between the brand image and the brand identity. Effective brand names build a connection between the brand personalities as it is perceived by the target audience and the actual product/service. The brand name should be conceptually on target with the product/service (what the company stands for). Furthermore, the brand name should be on target with the brand demographic. Functional Overview of ACILL

Supply Chain Management (SCM) A supply chain is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. It consists of all parties involved, directly or indirectly, in fulfilling a customer request. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains. A supply chain is dynamic and involves the constant flow of information, product and funds between different stages within the organization as well as with other organization.


The term supply chain conjures up images of product or supply moving from suppliers to manufacturers to distributors to retailers to the end customer along a chain. This is certainly part of supply chain, but it is also important to visualize information, funds and product flows along both direction of the supply chain. The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers and even customer themselves.SCM include the following operationsNon Inventory Procurement Planning DC operations Logistics Supply Chain Framework

Strategic Planning Planning Demand Planning

Supply Chain Framework

Supply Chain Policy

Supply Planning

S&OP process for demand & supply reconciliation & gap recognition

Supplier Development

Supplier Development Program

Supplier Identification & Selection

Supplier Training & Development

Procurement

Procurement Policy

Procurement Execution System

Procurement Evaluation & Monitoring

Distribution Network

Assessment of distribution variables at Supply Source & Outlet Physical Management

Selection of WH Locations

Optimization of Distribution Network

Process Documentation

Shrinkage & Pilferage Management

Fleet Management Contingency Inventory Planning

Transportation Policy Procurement

Transportation

3PL Management

IS Visibility

SC Planning

Supplier visibility

Procurement Visibility

Supplier visibility

Procurement Visibility

Inventory & Logistics Visibility

Logistics Warehousing

Crisis management

Supplier Performance Appraisal, Retention & Reward

Quality

Managing Quality at WH

Logistics

Inventory & Logistics Visibility

Non-inventory procurement: There are classifications of buying in ACIL. One is inventory buying and another is non-inventory procurement. Non-inventory procurement includes specially asset type buying like fixtures, freezers, Gondola, Vehicles etc. This department was the leading dept. for rolling out. the whole project. Without fulfillment of any sort of procurement no stored has been opened. Imported items also fall under non-inventory procurement. Others jobs like services such as maintenances, renting space are also being handled by this department. Stores consumables Requisitions come also to this department and then further actions taken accordingly by non-inventory procurement personnel.


2.8.2 Planning A constrained forecast is a forecast of bookings as we expect them to be constrained by inventory controls (usually, by recommended inventory controls from an RMS) A constrained forecast is not a forecast constructed solely from historical constrained demand observation. Knowledge & Learning Compititive Stratigic planning Business Plan Policy & Process mgt Mgt Intelligence Marketing Marketing Mearsurement & Optimization of Resousces Understanding Marketing Learning Project Project Portfolio Monitoring & Mnagement Mgt Control Enterprise Risk Emplement ERM Institutionalize ERM Management Framwork Process 2.8.3 DC Operation: The main activities of DC operations are: Create purchase requisition and inform to buying. Receive products and serve outlets according to their demand Product identification and handling Material management in SAP Return and Damaged Product Handling File and Document Management Safety and security maintenances’ of products. All products are distributing to outlets from DC. So DC maintains an important role for Shwapno.

FIGURE1:Shwapno DC is Progress in Space Utilization and Storage

. FIGURE2:DC Progress in Bar coding


FIGURE3: DC Progress in Material handling

FIGURE4: DC Progress in Perishables Handling Three DC throughout the country to serve the total business Central Distribution Centre (CDC): Dhaka, Narayangonj, Gazipur, Manikgonj, Netrokona, Jamalpur, Sherpur,Tangail, Faridpur. Chittagong Distribution Centre (Ctg DC): Chittagong, Coz’s Bazar, Rangamati, Feni, Noahkali, Bandorban, Khagrachori. Sylhet Distribution Centre (Syl DC): Sylhet, Moulovibazar, Hobigonj, Sunamgonj. 2.8.4Logistics: Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-ofconsumption in order to meet customers' requirements. Three objectives of logistics strategy: Cost reduction (variable costs) Capital reduction (investment, fixed costs) Service Improvement Logistics Activities Customer Service (outlet) Demand forecasting (PR generation) Distribution communications Inventory control Material handling Order Processing Service support Warehouse site selection Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehousing and storage In retail, Logistics activities will divide into two categories:


- Warehousing - Transportation The term “Resource” applies to all of the factors of production, including materials (e.g., goods we handle), equipment (e.g., trolley or vehicles), energy (e.g., electricity) and labor. Warehousing: Fundamental logistics questions areWhen a resource (material, machine or labor) should be put in inventory and taken out of inventory. Where should a resource be stored? Some of the important inventory questions are: How much does it cost to store resources in inventory? How much “safety stock” should be carried in inventory to prevent against running out of a resource? How much inventory should be carried in order to smooth out seasonal variations in demand? Transportation: Fundamental logistics are: Where resources should be moved to, and by what mode and route. When resources should be moved. The “where” question includes the topics of terminal location, Vehicle routing, and shortest path methods and network flow Allocation. The “when” question includes the topic of distribution rules. Some of the important questions are: What are the best vehicle routes? When should a vehicle be dispatched over a route? Do we use hired vehicle or own vehicle for a particular delivery? 2.8.5 Marketing and Merchandising: As per discussion with executives of Marketing and merchandising team, this function work as per following chart activities in summarized format. Customer Revenue Merchandise Assortment Plan Brand Mgt Brand Development & Design

Basket Size

In-Store Activities

Pricing

Promotion Brand Equity

Typical Retail Marketing and Merchandising Departmental Structure:

Value Added Service Demand Plan Brand Communication


2.8.6 Finance and corporate affairs: Typical Retail Finance and corporate Departmental Structure:


2.8.7 Information Systems: Typical Retail Information Systems Departmental Structure:

2.8.8 Human Resource and Admin Typical Retail Human Resource and Admin Departmental Structure:

3. Overview of Retail Chain 3.1 Retail Chain: Chain stores are retail outlets that share a common brand and central/ decentralized management under one umbrella linking with each other and usually have standardized business methods and practices. The displacement of independent businesses by chains has generated controversy in many countries, and has sparked increased collaboration among independent businesses and communities to prevent chain proliferation. Such efforts occur within national trade groups and community-based coalitions. 3.2 Retail Chain in Bangladesh In Bangladesh, where economy is based on agriculture altogether, are required to emphasize more on agribusiness and supply chain development since these countries lack sufficient technology to move to industry, which requires natural resources as well as extensive technological knowhow. Every country has comparative advantage on some area, and so does Bangladesh. Comparative advantage of Bangladesh is supposed to be agriculture. It cannot deny the role of agriculture to the economy as it has to import a lot of food every year to meet the local demand, while there are lots of potentiality to grow foods if lands are


properly used and modern technology is adopted in agriculture. Understanding the gap in the value chain, ACI has initiated to establish new businesses namely ACI Agribusiness and ACI Logistics to remove this gap, to uproot cartel, and to ensure reasonable price for both farmers and consumers. The other retail shops are also establish in Bangladesh ,these are, Aagora, Nandon, PQS, Meena Bazar, Lavender, Family Needs. These all are popular and successful retail shop in Bangladesh. 3.3 Different Types of Retail operations The different types of retail operations are Electronic retail business,Shoe retail chain, cosmetics retail chain, Development retail business,Motor retail chain, Furniture retail business,Car retail chain, Plastics retail chain in our country. 4.Overview of Shwapno- a Retail chain of ACIL 4.1 Introduction: ACI Limited has got a great endeavor to expand its business for going to direct contact with consumers and hence they have launched their retail chain “Shwapno” which is direct consumers interfacing platform. The brand name “Shwapno” has come into the dashboard with the perspective of executions of dreams of transformation of life style of Bangladeshi retail consumers specially wet market consumers and buyers as well as transformations of farmers value chain with objective of right prices for everyone. 4.2Theme and Propositions of “Shwapno” Outlets: The concept of establishing “Shwapno” has come from the thoughts of keeping pace of changing life style of Bangladeshi people specially growing GDP which supports upgraded buying pattern of general people of middle and lower middle class people. The core focus was alternative platform for overcoming present inconveniences of shopping in wet market. In our wet market (“traditionally called “kachabazar”) there is no right price, right weight and variations of right quality. This is much unstructured market where buyers can not exercise his rights specially women shopping is quite inconvenient whereas in our society women shoppers are growing. So with view to giving right price, right weight and the shopping conveniences to buyers and consumers ACI has dreamed for opening its retail outlets “Shwapno” across the country. The basic propositions of the store is keeping Grocery, Vegetables & Fruits, Fishes, Meats, Household Items and company goods items. If we look at price propositions of green items then it’s lower than traditional wet market and quality is much better. Specially red meat quality is far better than others normal shops. 4.3Classifications of Store: Considering variations of socio-economy class of people ACI has established different stores in different segment. Like for “A” class people whose monthly income more than 90,000 they have established “A” type store where Air-conditioned ambience is available and space is more than 3000 sqft and good equipment is available. But for lower middle class people they have created different stores which is less than 2000 sqft but air-conditioned ambience is not always available. Price proposition is also different from store to store. They have four type of stores “ A” “B” “C” & “D”. 4.4Locations and Networking of Outlets: ACI has now retail operations in three divisional towns. In Dhaka they have 34 stores, 3 stores @ Chittagong, 3 stores @ Sylhet. In Dhaka they have different stores area like Gulshan , Banani they have high standard store which area is 3500 sqft and product range is also high. But store @ Basabo is different and it’s less than 2000 sqft in size and not that much convenient. If we see top view of its spread its well spread net web of retail chain across the capital city.


4.5SKU Propositions: Shwapno maintains more than 2000 to 5000 SKUs @ their stores. But it depends on locations and store type. “A” type store keeps 5000 SKUs and but “D” type store keeps around 2200 SKUs. High end personal product is available @ “A” type store like imported personal care items but that’s not available @ “D” type store, 4.6Revenue and Margin Propositions: Across the world start-up revenue target of the retail chain is not that much attractive but in the long term huge revenue growth is possible though margin is not more than 17%. Retail chain like wall mart and Carrefour is around 18% but their revenue is much higher. Initially ACI has aimed for 500 cr annual revenue target with GP of 17% from its 50 stores. But initially they could not achieve but now a day their sales growth is double digit month on month. And margin is almost near to 15%. They are overcoming lot of hurdles as big player and new entrant in the market. It will take another 2 to 3 yrs to get NP in positive number 4.7Supply Chain Network: To support all these stores Shwapno has its own central “Distribution Centre “. For perishable items they have specialized DC and for other Goods they have another two DC. One is in the heart of city and another is @ Savar. They have good supplier network for green items across the country which is linked with farmers. Almost more than 100 buying agents are involved for procuring fishes, meats and vegetables across the country. 5.Inventory Management in Shwapno 5.1 Literature overview of Inventory Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Naturally many of the items a firm carries in inventory relate to the kind of business it engages in. Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. What Is Retail Inventory Management Retail inventory management is the process and methods used to keep track of the stock in a retail business. These methods control everything from ordering, shipping, receiving, tracking inventory, retail turn-over, and storage. Retail inventory management can help keep a business’ profits at a steady margin as well as reducing theft and loss of inventory. Many retail businesses lose money every year because they do not have a successful inventory management system in place. How to Manage Inventory Most businesses use some form of computer software to manage their inventory. Unless the retail business is very small, doing it manually would be very impractical, especially for large companies that deal in thousands of individual products.


A business that has a successful system for retail management will allow the business to keep a sufficient amount of stock to meet customer demand. If a business does not have enough inventories, then it can slow down cash flow. Too much inventory can cost business money and take up more room. Managing retail inventory involves several characteristics and steps. One of the most important steps is to make sure that you always remove products from the system as soon as they are sold. The same is true for receiving shipments of new stock. Make sure you record it as quickly as possible. 5.2 Inventory classifications in view of category tree Baby Food Baby Care Beverage Commodities Dairy Gift & Toys Home Care Infotainment Kitchen Additives Packaged Foods Perishables Protein Stationeries Body Care 5 .3Process flow/Diagram of inventory movement 5.3.1 Company Goods


5.3.2 Perishables Goods

5.4 Order generations and DC stocks building As discussed earlier order generations are two types. Order for Company Goods and Perishables. Under broad aspect of perishables commodity is also included. But for DC stocks building order generations specially deal with company goods and commodity as perishables is day to day basis purchase and sell. So for company goods and commodity, category management team do forecast of sales in line with outlet operations team considering daily average sales, any promotional effect which is coming, any festive effect


etc. After that supply chain planning team consider the following things before generations of Order – in SAP terminology – “Purchase Requisition” On Hand stocks in DC Supplier Lead Time Average DC consumptions Safety stocks Stocks in transit Open STO for stores Considering the above parameters order generations take place from supply chain for optimum inventory level to reduce working capital and ensure outlet operations demand to a satisfactory level. This order generation basically passes through to Buying Department for ordering to vendors in the form of PO. As per order quantity and no of SKUs vendor ensure supply at DC end within lead time. But in real scenario most of the time exact quantity not supplied and on-time delivery not takes place. Overall fill rate not more than 60% by vendors. 5.5 Inventory Receiving Receiving, for the purpose of distribution center, refers to the collection of goods or products in the DC from Buying & Merchandising team personnel, buying agent, suppliers or distributors or manufacturer of those products. Receiving procedure varies for: Direct purchase by B&M Team/ Buying agents Perishable Supplier Suppliers or distributors or manufacturer of company goods For Direct purchase by B&M Team/ Buying agents: Goods will be received as per chalan copy submitted by buying team; in chalan copy the following three things will be mentioned: Weight or Quantity of items measured on the basis of set UOM in MAP Trade price/ Unit price/ Rate/ COGS of items IS ID for respective line item. Inventory personnel will generate GRN in system as per provided IS ID, T.P/Rate and quantity or weight of each line item. Warehouse/ DC personnel will measure the weight of goods or quantify the acceptable goods (as per quality guidelines) physically in number and cross check with respective line items as stated in delivery chalan submitted by B&M Team. The inventory personnel will treat the following three different situations in below process: If Goods found in same quantity as mentioned in delivery chalan, then GRN & delivery chalan will be printed and kept along for document processing. If goods found excess than the quantity mentioned in delivery chalan, there needs to make adjustment conforming the process as per Adjustment Process If goods found less than the quantity mentioned in delivery chalan, there also needs to make adjustment conforming the process as per Adjustment Process For Perishable Supplier: Goods will be received against the demand plan forwarded to B&M team Inventory personnel will collect a bill copy/ chalan copy from the supplier where the followings should be mentioned: Trade price/ Unit price/ Rate/ COGS of items Quantity or weight as appropriate for individual line item. Total bill for the delivery. During Receiving, Inventory personnel guided by Quality Assurance Officer, will ensure that only acceptable quality items (as per quality guidelines) is received.


B&M Team will provide the Trade price/ Unit price/ Rate/ COGS of each line item mentioning the IS ID for the respective item. Warehouse/ DC personnel will measure the weight of goods or quantify the goods physically in number based on the items’ UOM set in MAP. Inventory personnel will generate GRN in system as per provided IS ID, provided T.P/Rate and measured quantity or weight of each line item. For suppliers or distributors or manufacturer of Company Goods: Goods will be received against Purchase Order issued by B&M Team. Inventory personnel will receive an Invoice/ Delivery chalan from the supplier where the following things should be mentioned: Delivered quantity or weight as appropriate for individual line item. Trade price for each line item Total bill for the delivery During Receiving, Inventory personnel guided by Quality Assurance Officer, will ensure that only acceptable quality items (as per quality guidelines) is received. Warehouse/ DC personnel will measure the weight of goods or quantify the goods physically in number based on the items’ UOM set in MAP. Inventory personnel will generate GRN in system against the PO with actual quantity or weight of each line item. ~ provided that, If in Invoice it is found that TP/Rate for any line item differs from PO, then they should communicate with respective contact person from B&M team. If actual quantity or weight is more than the PO issued quantity/ weight, then Inventory personnel should communicate with respective contact person from B&M team before accomplishing GRN. If actual quantity or weight is less than the PO issued quantity/ weight, then Inventory personnel will simply complete GRN as briefed above. 5.6 Inventory shelving and storage Supervisors need not to check each product from each cartoon if the cartoon is intact. Normally there is a batch no. on the cartoon. If a product is checked for date expired and each of the cartoons is for the same batch no. that means that, the Mfd and Exp date is similar.


Figure5: Different Batch no. indicating possibility of different mfd. and Exp. Date. Similar Batch refers to same Date for Mfd and Exp. After receiving it would be helpful if the supervisors tag the cartoon with colored Paper etc. to track the product anytime easily. In this process, we can follow the below arrangement. Color Tagging (might be by Paper) Formula: Green: Will be expired between Jan-Mar Yellow: Will be expired between Apr-Jun Black: Will be expired between Jul-Sep Red: Will be expired between Oct-Dec Chart: Color tagging Formula (Need to be tagged on Cartoon) Racking: When the tagging will be completed the product should be racked in master category (product type wise) system, keeping a blank column so that product can be delivered accordingly; and the product shuffling would become easy in case of necessity. It’s like the game of matching the no. as per consecutive sl no. which we have played in childhood. 1

7

5

1 2 3 B 3 Blank 4 4 5 6 l 2 6 8 7 8 Blank a n k Before Snuffling After Shuffling (need as per color code) k FIGURE6: Racking, Maintaining a blank column. k 5.7 Inventory Picking and Delivery process At the time of delivery supervisors will pick as per the color code. Say for example today is the 13th February, 2010 and so; the supervisor will pick the green color product then yellow and so on. If the yellow color product suggests that there are only few days to be date expired then it should go in return to vendor location of that both physically and as well as in system. Here a question may arise that yellow color may be for Jan –Mar of 2010 or 2011. Then the simple answer is that the outlook of the product is giving the answer. 5.8 Order Process and Replenishment-DC vs. Outlet 5.8.1 Company Goods As mentioned in the process flow of inventory movement Outlets raise STO-“STOCKS TRANSFER ORDER “in SAP for their stores’ demand. For company goods and commodity usually convention is two times replenishment in a week @ max. But considering back store size and sudden pick in sales stores generate more frequently. However as per STO from outlets DC has to ensure the required stocks supply at outlets within three days based on stocks available in DC. When DC arrange delivery for particular store as per schedule then they consider previous 15 days pending STOs which not served earlier due to stocks unavailability in DC. So compilations of STOs are a major task for order processing and replenishment of stocks to outlets. For exceptional purpose like Before Friday Sales or During Eid sales Day to Day basis replenishment also takes place though distribution cost has becomes high but for maximizing revenue it isusually done. 5.8.2 Perishables


Perishables include Protein-Fish, Meat; Vegetables, Fruits etc. So these are the daily basis order and replenishment from DC to outlets. At afternoon stores personnel take his stocks and forecasting rest time sale and next day sales then he/she generates order and sends it to Head Office through SAP systems. It comes to Buyer screen and Buyers compile all the orders from stores and Generate PO for that. Perishables supply basically takes place in two form- from Suppliers and by own Buying Team who work during night and purchase from “The Biggest Wholesale Market-Kawranbazar” Whatever the source, all these perishables items need to come to DC by Mid-Night for quality check, outlet demand wise segregation then loading to vehicles for delivery Basically through SAP systems DC get all STOs from stores and then they generate pick notes stores wise and hand over to supervisors. They process the delivery of goods and ensure early morning arrival of stocks at outlets. 5.9 Order Process and Replenishment-Central DC vs RDC Presently in “Shwapno” Regional Distribution Centre (RDC) take stocks from Central Distribution Centre (CDC) as yet full-fledged regional based company and commodity goods supplier not developed. CDC usually sends stocks to RDC once in a week based upon requirement of RDC which is sent to CDC through excel sheet. 5.10 ABC Analysis-80-20 rule ABC analysis is methodology that gives us quickly and simple review of our assortments of products in retail, wholesale or manufacturing businesses. But, this analysis is possible to use in all areas of your business when you as an entrepreneur must take decisions about inventories, product assortments, marketing techniques, business processes, costs... ABC analysis gives us mechanism for identifying the products that have high influence on the overall costs of inventory and identifying the category of inventory that requires different management and control. Similar or the same as ABC analysis is 80/20 rule that is also known as Pareto Principle. This rule tells us that 80% from effects come from 20% of our activity, or 80% of our sell come from 20% of our customers. In every business exists products that are not equal in their value. Some products are more required from customers, for some products you have larger margin, some you must have inventory for completing the assortment. Because of that, all products are different in sales volume, value, meaning etc. You must tend to have a lower level of inventory or optimal level because inventory has very negative impact of overall business activities. With these method entrepreneurs may to have clearly view of whole assortment of products and meaning of this assortment to whole selling and whole income. It must differentiate two things, firstly, how much income you have from every product line? Secondly, how much is required these products that mean what is the turnover of that particular products? Some products may to have higher turnover but in the same time have lower income and because of that larger turnover we have larger earnings from that product. Maybe customers in most cases will come in the store because of that particular product and will buy something else or another product. Because of that you must make two tables. In first you will analyze assortment of products (number of products) versus whole income, and in second table you will analyze assortment of product versus overall turnover. In this way, you may to combine this 2 analysis and to view real situations and to choose variants that maximizing results and give us better results in working. We can make classification of articles with ABC analysis when we divide assortment (whole articles) in 3 segments. First segment is segment A where belong in products that are minimum obtained, for example, about 20% from overall turnover and this article give us great income, for example, 70% from overall income. Second segment is segment B, where we have much more articles in quantity, for example, about 30-50% of all products that we have, but they give us only 20% from overall income. Third segment is segment C, where we may to have about 50% of all articles that we have, but they give us only 10% from overall income So based on this analysis “A” type inventory would get priority in terms of ordering .


5.11 EOQ Model How much to order is determined by using an economic order quantity model.It identifies the optimal order quantity by minimizing the sum of certain annual costs that vary with order size. It is used to determine a fixed order size that will minimize the sum of the annual costs of holding inventory and ordering inventory The unit purchase price of items in inventory is not generally included in the total cost because unit cost is unaffected by the order size unless quantity discounts are a factor. Thus given annual demand, the ordering cost per order and the annual carrying cost per unit , one can compute the optimal order quantity.

Carrying Cost Rental for Animal Penn/ Shed (Hub)

288000

(Tk15/ Sq. Ft./ month* 32 Sq. Ft./ Cattle*50 cattle (carrying capacity of the penn)*12 months)

Caretaker Wages

438000

(Tk 200/ caretaker/ day*6 persons*365 days)

Cattle Feed Annual Total Carrying Cost for 50 cows Annual carrying cost per kg

693500 1419500 0

(Tk 38/ cattle/ day*50 cattle*365 days)

Ordering Cost Hashil & commission Caretaker cost Inbound transportation cost Ordering cost/ order

283.9

(Storage capacity of the penn = 50 cows; weight of 1 cow = 100 kgs)

4800 800 12000 17600

(Tk200/ cattle*24 cattle/ truck) (Tk 400/ 12 cattle*24/12) (Tk12000/ truck) (where 1 order = truckload)

Example of EOQ model applied for Beef in Shwapno


Annual Demand

1224000 kg(51 outlets* 80 kg per outlet per day*300 days in a year) EOQ=(2x Annual demand xordering cost)/Annual carrying cost =(2x1224000x 17600)/283.9 =12319kg No of Order per year= 1224000/12319= 99 Average QTY ordered/ store per order=12319/51= 242 kg Time gap between successive orders (In days)=365/99=3.7 days 5.12 Safety Stock Management For safety stock management, it is essential to have reliable estimates of the amount & timing of demand. Similarly it is essential to know how long it will take for orders to be delivered as well as the extent to which demand & lead time might vary. Thus there is crucial link between forcasting & inventory inventory management. In Shwapno for company goods , outlets consider weather forcast , festival occasion for maintaining safety stock whereas safety stock management at DC consider uncertainty of supplier production, supply constraint in the whole sale market, fluctuation of the outlet consumption etc.For perishable items, there is no defined safety stock at DC except some specialized items like Hilsha which is preserved in cold room whereas in each & every outlet keeps some safety stock of perishable itemsto cater uncertainty of demand. 5.13 Out Of Stock and Over Stock Management In retail business, out of stock and overstock is a very critical issue because in both casesthere is a probability of revenue or profit loss. For example, in the case of over stock of perishable items, the selling price of the same will be decreased by the time & if cannot be sold it will be treated as damaged. So to manage the overstock the forcast accuracy has to be improved.For holidays/ festivals or for seasonal perishable items, 20% over stock is maintained & if all are not sold then they are sold at trade price or discounted price. For over stock of company goods, there is an agreement with the vendor for return management.Out of stock means revenue loss for the company because if the customer comes & does not get the desired product then it means that the outlet has has lose lose its customer demand for that productand in the long run it may be the permanent turnover for the customer . So to prevent out of stock situation , ACI is basically taking the following measure Flexible and quick delivery from DC Back store shelving for critical items(such as Soyabean oil, milk, sugar for Eid or for promotional business) Strong supplier of the perishable items for quick replenishment of beef , chicken especially for holidays & festivals. for highly perishable but low value foods it is not advisable to maqintain the back up because it leads more losses rather than customer satisfaction. 5.14 Stock Return Management In retail stores operation Stocks Return management is huge challenge because it hits inventory cost as a write-off if not possible to return the stocks to vendor. Generally there are some reasons for which stocks return is required- They areOver stocks situations if sales drop Over stocks situations if forecast is grossly wrong Left over promotional stocks Expired Goods Handling and Transit Damaged As financial impact is high so a well-defined stocks return procedure from Stores to DC and Stocks return from Stores to direct Supplier is governed by the clause of contract between Shwapno and that particular vendor. However a SOP is stated below for ‘stocks return’.


List of return stocks to be prepared by respective store manager Approved by COM Send it to finance for authorizations Then send it to DC and then receive physically 5.15 Damaged Stock Management In Food and Grocery Retail Store operations like “Shwapno’ stocks damage is generic problem. But efforts should be made to minimize damage as it directly hits in P&L account in financial statement as a net loss. So systems and procedures are in place to reduce damage stocks. Generally there are some basic reasons for damage such as Over Stocks Date expired stocks Handling damage Transportation Damage Improper storage Improper temperature and humidity The above reasons may take place in stores and DC. Now there is set procedure to manage damaged stocks in “Shwapno”. We can say there are two methodsClearance Sales Disposal In both case write-off provision to be taken through proper management approval Perishables Damaged Stocks: However in execution side there is schedule to bring perishables damaged stocks back to DC for centralized clearance sales and disposal. Generally one after another the returned empty vehicles which supply perishables in the morning is being used for taking these damaged stocks back to DC. A Clearance Sales team comprising with ‘Quality Assurance Officer’ inspect and do quality check and then decide which are going for Clearance Sales and which are going for Disposal. Company Goods: Damaged company goods lying at Stores fall under SOP of ‘Stocks Return” subsequently these are being added up to DC damaged stocks. Generally there is segregation process for damaged stocks identifications and storage in different specific storage shelves to avoid cross contaminations, wrong goods delivery. There is also damaged stocks accumulation in DC itself as there are enough reasons for handling damage, improper storage damage etc. However after accumulations of substantial amount of damaged stocks, DC personnel raise approval note for clearance sales and disposal. As per authorization matrix this approval note is being processed and then DC teams go for execution of clearance sales and disposal. Clearance Sales Process of execution (When & How): Damaged/ rotten/ date expired/ inferior quality goods and wastages will be identified under proper guidance of Quality Assurance officer following the quality guidelines. Quotations are sought from different vendors and a team evaluate price and highest price giver is being awarded for sales. Identified goods will be measured (in quantity or weight according to set UOM in MAP) and earmarked in assigned area for clearance sales. Measured goods will be handed over to the clearance goods customer/buyer An sales invoice will be created in system providing the below information: IS ID for items to be sold at clearance Quantity or weight of respective items Discounted rate for respective items A Gate pass/ Chalan will be made accordingly and will be duly signed by the customer/buyer. Sales invoice will also be signed by the customer/buyer and kept along with Gate pass for document processing Disposal:


The stocks which are not suitable for clearance sales are being disposed off as its approved. Under the guidelines of quality assurance and legal team initiatives are taken to dispose off of the damaged stocks into Govt. designated area. 5.16 Stocks Return to Vendor (RTV) As per agreement /contract with vendor generally negotiated and finalized by Buying team, there are provisions of stocks return to vendor. As per common practices following types of stocks can be arranged for returns to vendorOver stocks but not expired Manufacturing defects Damaged products at discounted rates Some exceptional expired products like Ata, Moida However in execution side DC team prepare list of products for return to vendor and create a note in SAP and send it to Buying team. Buying does the negotiations with suppliers and get schedule and inform DC. DC arrange accordingly. Generally it takes place when vendor bring another consignment for delivery then they bring back the agreed stocks. On the other hand a debt notes to be generated in systems against the vendor while goods will be returned to vendor as per communications. 6.Distributions Model of “Shwapno” 6.1 Overview of different distribution model Generally in FMCG company distribution follow the following process

In Food and Grocery type Retail Chain like ‘Shwapno’ distriution takes place as per


6.2 Nature of Distribution in Shwapno As it is Food and Grocery stores and selling proposition includes perishables items like Fish, Meat, Vegetables and Company Goods ,so distribution nature is quite different from products to products. Company Goods are generally being distributed as stated above but for perishables distribution considering complexity and uncertainty in inbound logistics is quite a bit different and time chain analysis is required. So following model and calculations can be taken into accountsPerishables Distribution Strategy for Dhaka Metro Type of Perishables

Shelf Possible Life Sourcing Points Highly Perishables 24Around (Puishak, Lalshak & 36 Dhaka Palongshak & Meat hrs (Savar, etc ) Munshigonj, Kawranbazar, Jatrabari & Khlkahet ) Medium/Regular 48 Nimsar, Perishables (Korala, hrs Narshindi, Potol, Begun, Jhinga Trihsal, and Fish etc) Palshbari, Mahastangor , Sitakunda, Jessore Slow 7 Where the Perishables/Commodity days items are in (Alu, Ada,Rasun, and abundance Chalkumra etc. ) more than 7 days

Supply Strategy Daily Basis Procurement & Replenishment

Daily Basis Procurement & Replenishment

Seasonal buying & storage & replenishment twice in a week

6.3 Mode of Transportations There are three modes of transportations in Shwapno. They are – Own Vehicles Monthly Rental Basis-3P Logistics Vendor Trip Basis- 3P Logistics Vendor For these three types modes of transportations cost is being captured in different way. The following flow charts are given as a concept. Cost Capturing Own Vehicles-


Cost Capturing- 3P Logistics Vendor

6.4 Fleet Management –Permanent and Contract ACIL has own permanent fleet and contract fleet as well. These are permanent fleet. Management controls of these vehicles are basically done by- Transport officers, Logistics Executive through Head Office Coordination. There is a vehicle scheduling on which basis generally goods are carried by from DC to stores. Sometimes these vehicles are also being used for inbound logistic for carrying perishables form source to DC. Transports Personnel: Drivers and delivery man are being hired by the company itself on contractual basis. Generally to ensure maximum trip there is overtime payment systems for drivers exceeding 10 hrs duties in a day. There is record register for duty hrs and authorized by concerns executives and then sent to HR for monthly salaries. Fuels Control for Permanent Fleet Fuel is everyday cost and very sensitive area for managing fleet and transportations cost. So monitoring fuel consumptions by own fleet is major challenge as there is possibility of pilferage and misuse of fuel. As per engineering knowledge or general knowledge there is fuel economy calculation like fuel spent by km. It varies from type of vehicles such as for cool van its different, for diesel driven van its different. It also


depends on Traffic in the road. Considering all these real factors there is Fuel Log sheet where drivers put their approximate distance and fuel consumptions which are verified by concerns authority. For good governance and control there is Fuel Station from where our drivers take diesel or octane or petrol giving signed receipt. Payment has been made centrally from Head Office. Transports Personnel: of Contract Fleet Drivers and Helpers are appointed by 3P vehicles owner and their salary is fixed from 3P logistics vendor but their overtime is being recorded and given by ACIL. There is fixed monthly payment contract with 3P Logistics Vendors. They submit their bills at the end month and after verifications it is generally sent to Finance Dept for payments. Fuels Control for Contract Fleet: For this type of vehicle same process is maintained for fuel control like permanent fleet. 6.5 Route Optimizations and Cost reductions In retail chain for minimizing distribution cost there is well known and proven concept “Milk Run” for route optimizations. As in the same city “Dhaka” there are more than 25 stores so this “Milk Run” concept is very much applicable for cost reductions and its generally practiced for both perishables and company goods distributions. Some theoretical concepts for “Milk Run” are given belowProcedure Milk-Run especially becomes very important in cases where There is demand at multiple pick-up / delivery points for urgent services, hence the need to optimally prioritize When a provider runs a number of vehicles (ex - trucks) to provide delivery / pick-up of items and hence needs to optimize the routes When precision electronics / automotive spares from certain manufacturing clients need to be urgently shipped on a JIT basis to the next stage in the supply chain Here is how a generic process in this case using the milk-run method work – Firstly the nodal points of distribution in a milk-run are established. These might be collective pick-up / delivery points for the trucks / pick-up vehicles. Then the variables that matter to the vendor for that particular process are determined – like distance, cost, priority of delivery / pick-up, cycle-time or perishability of a product. At every point in a distribution network, Milk-run mandates an optimization of the said variables. This would mean if what matters to the vendor for pick-up and delivery of automotive spares are the variable – ‘distance’, priority of pick-up or delivery, and shelf-life of the products in that order, then weight ages are given to each of these activities / variables and their pecking order in terms of priority determined. So, at every nodal point, Milk-Run method mandates the vehicle to run the heuristic considering all the variables with the above variables. So say from Node A in the network, the closest point for the truck would be Node B, but this will also be traded off against the other variables taken into consideration. So even though Node B might be geographically the closest, but if Node C is also close and at the same time C scores higher in terms of priority (urgency), the spares that need to be delivered at point C might be far more urgent than the spares needed at point B because an entire assembly line might be in wait of the spares at C while in case of B, no such glaring urgency might exist. So in terms of weight age, C receives far higher importance and overall score of C is higher. Hence Milk-run would favor point C at the first Nodal point A.


This would continue at every node until all requirements are met. Now considering the same truck not only for delivery but also for pick-up would add a whole new set of variables to the existing list. When so many variables exist, Milk-run is among the few simple yet tested method of optimizing vehicle routing. Benefits Cost Minimization – When there are a number of collection / delivery vehicles due to high demand for the same, the cost of overheads becomes very high. Optimizing the routes becomes a necessary evil to reduce cost Reduced pick-up / delivery time More customized services to the clients as delivery / pick-up priorities are measured and executed It is easiest to adapt and execute. 6.6 Capacity Utilizations and Cost Reductions There are different capacities of carrying trucks like 750 Kg, 1000 Kg. 1500 Kg, 2000 Kg, 3000 Kg etc. But areas like Dhaka city corporations in day time there is regulations for ply up of different vehicles. So 750 kg to 2000 Kg capacity vehicles are most popular and usable vehicles for serving stores inside Dhaka Full capacity utilizations of vehicles ensure low carrying/distribution cost. Like if 1000 kg vehicle can carry exactly 1000 kg goods and per trip cost is tk. 1000 then per unit carrying cost tk. 1.00. Whereas if it carries 800 kg meaning under capacity utilizations then per unit cost will be tk. 1.25 which is 25% higher. So ensuring capacity utilization is also a key factor for ensuring optimization of distribution cost. But in practical scenario while carrying perishables it is always not possible to ensure full capacity utilizations in terms of weights. Like as perishables are very sensitive in terms of handling and carrying so highly and medium perishables cannot be stacked in vehicles and hence less quantity to be carried. In general case or retail practice creates are being used for carrying perishables. So its weight volume ratio which needs to be determined for fixing actual carrying capacity of vehicles then benchmarking and then ensuring optimum utilizations and use. For commodity and company goods carrying sometimes vehicles can carry more than its capacity if demand of stores match. It also supports in terms of mechanical feasibility of vehicles and goods conditions. 6.7 Distribution Cost Impact in Business Distributions cost basically is being measured in terms of inventory value which are carried in vehicles and in terms of revenue as well. Sometimes it is also calculated how much margin being eaten up by distribution cost. In ACIL distribution cost basically hits Profit and Loss account. It is not included in COGS. Generally cost involved in goods arrival at DC treated as COGS. After that distribution cost being deducted from GM meaning it affects net profit. However in general case and in efficient operations distribution cost is 2% to 3% of total margin in retail. But as being new operations it’s approximately more than 5 % in ACIL. For perishables carrying sometimes distribution cost exceed 10% of inventory value. But for company goods it is only about 1% of inventory value because high value products. 7. Findings and Recommendations During study on the topics of “Managing Inventory and Distribution” in “Shwapno” some key findings have come out as real facts and with respect to industry practices and theoretical aspects of retail industry some recommendations are also given belowOverstocks and working capital: initially for launching the stores huge amount of stocks purchased but as per sales trends now stocks have become stacks and many items have proved as slow moving items. So these slow moving items block working capital. So as per retail standard


this over inventory needs to be returned to vendor or Distributed in such stores where sales can shoot up. Promotional activities should run for clearing these stocks so interest on working capital is reduced Return Stocks management: As many stores can not arrive at target sales so huge amount of stocks need to return as there are no sufficient back stores. There should be strict rules and procedures returning these stocks to DC. Training needs to be arranged for right products picking and delivery as there are mismatch in dispatching products to stores in picking zones. New supervisors need to undergo massive on job and theory training for products knowledge and DC operations procedures. Damaged stocks handling to be streamlined putting some sort of control on operations. Specially how those will be segregated, how those will be go for clearance sales and reporting for that. Cash reconciliations and depositing to finance should be a key focus. Over all distribution cost is high in ACIL. So cost reductions program to be taken for reducing cost as priority project through different methods. It is only recommended to get full study on it then strategies to be rolled out and implemented. Fuel cost monitoring tools could be automated through even using excel file and another recommendation is to capture distribution cost in ERP systems “SAP� then optimization procedures will be expedited as visibility will be increased. 8. Conclusions: In conclusion phase some points could be highlighted for further improvement in quick basis which has come out through interview and discussion time to time basis and those are given below -Supervisors and Labors are not educated enough to understand the importance of shelving & racking the goods. -Lack of proper storage facilities for vegetable, fish, fruit & meat. -Quality officers are not well trained. Training is needed. -Lack of expertise by the procurement team is a big problem for the company. If the buying team buys the wrong quantity of goods or poor quality of goods or pays higher than the usual market rate, the whole process get affected. -Lack of well efficient manpower in different level as this business is new in Bangladesh. The company hires pick up van, cover van from the transportation agency as they have no of their own. As a result they have to pay more, in urgent times van is not available. In rainy season cover van is usually unavailable as their demand increases. As the company is in initial phase of operation, it will take time to establish the whole scenario. So there should be some points that have to give special emphasis. The operation of supply chain is a continuous process. Actually it is like a relay race. If one takes extra 1 minute then the whole system will take extra 100minutes. So from the planning phase to procurement to Distribution center to Logistics, everything should go hand in hand. Otherwise the whole chain will be broken down. For the smooth operation of this kind of business, DC should be operated very efficiently. Creating appropriate logistics strategy is mandatory to survive in the business. Supply chain management always addresses one thing is that if you lose while you are purchasing then there is no point to extract profit out of it. As the process is all about buying and selling to the ultimate consumer group so setting the priority of advertisement is must.


Millions discover their favorite reads on issuu every month.

Give your content the digital home it deserves. Get it to any device in seconds.