Company: Shan Foods
Topic:
Inventory Management System
Course:
Production/Operation
Date:
Management
26/03/17
CONTENTS:
Acknowledgement
Executive Summary
Introduction
Overview of Planning
Benefits of in house war-house
Inventory Management System
Shan foods Inventory Management system
Packaging Inventory
Counter cycle Method
Physical count
Electronic count
Challenges face in inventory management
Countering to the challenges
Overview on return
Causes of return
Conclusion
Acknowledgement:
All praises and thanks are for Almighty Allah Who is the source of
all knowledge and wisdom endowed to humankind and to the
humanity as a whole. They would particularly like to thank our
course facilitator Sir M.A Khan for many insights that he provided
throughout this course. His guidance and support proved to be
useful tool in making the repot a quality one. The encouragement
and assistance of our parents and friends provided us a great deal
of wisdom towards the completion of this report.
Thank you.
Executive Summary
This report is on the inventory management department of the Shan Foods
Private Limited based on the detail interview with respected employee
Shan Foods Private Limited was established in 1981 as a home based
industry selling recipe mix and with in no time it get a huge success and
now it is a leading Spice Manufacturer in Pakistan. Company is also slowly
and gradually expanding their operation throughout the globe. In this
report we identified how Shan food Pvt Ltd is managing their inventory in
order target maximum availability in the market whenever customer
demand. As Shan Foods have a large number of SKUs so it is a big challenge
of Shan Foods to manage their inventory and fulfill the demand of their
customer on time. With state of the art integrated supply chain department
Shan Foods Pvt Ltd is sustaining their position in the market with
providing availability of their every SKU in the market. Shan Food is mainly
managing two types of inventories that are finished goods inventory and
Packaging inventory for that separate MRP is identified for both of them.
Shan Foods is effectively managing their inventory and they have removed
all the barriers and problems by effectively planning their inventories in
order to reduce their inventory cost.
Introduction of Shan Foods
Shan Foods was initially launched as a small house based business
who started selling recipe mix mostly to friends and family; then
gradually the demand for their products increased and it crossed
the Rs. 3 Billion mark with their product division channels across
the world in more than 45 countries. Shan Foods has always
followed a very straight forward approach to limit them within
the spice business and avoid going in to any other fields. Shan
Foods is acutely embedded with South East Asian Communities
living in different parts of the world like Europe, US and Australia
be participating in different events time to time. The company
started to expand at a remarkable growth rate since 1981 when
the Chief Executive Officer of Shan Foods (Pvt.) Ltd. Mr Sikander
Sultan made his way to success by mastering the spice business. It
was his devotion and commitment that a company that started
from just a room got an immense growth and today Shan Foods is
considered a powerful brand with its existence in more than 45
countries of the world and comes among the most reputed brands
in food industry. Today after setting their name as a reputed food
company whose products are cherished across the world, they are
now planning to expand their product lines in order to enjoy the
benefits of growth opportunities; as Shan Foods is continuously
introducing new products that are specifically according to the
new requirements and needs of their consumers. The success of
Shan Foods and be summarized by describing its quality to
continuously identify and react to its customers’ trending needs
through their well established R&Ds, QAs and ideal manufacturing
facility.
If anyone wants to have an example of a prosperous Shariah
Compliant Business, then Shan Foods can be one of the perfect
examples. In this industry, the Labor Strength is more than
thousand employees, who are well aware to vision of Company &
focus on Quality Standard regarding SOPs, The aim of Shan Foods
(Pvt.) Ltd is to be familiar as the world’s no 1 reliable leader in
quality, taste.
Vision of Shan Foods
Shan, a responsible corporate citizen, adhering to its core values,
trusted globally for providing great tasting consistent quality food
products. Mission of Shan Foods They are determined to reach
every kitchen by diversifying into growing food categories
through innovative, healthy & safe products for the ultimate
delight of our consumers. They will enhance shareholders value
through sustainable growth, develop strategic relationship with
our business partners and ensure safe work environment for our
employees. Core Values Core values has been dominate with the
beginning of Shan foods, which helps to made culture & describe
the personality of Shan Foods, which is focusing the groundwork
on which its employees performance & make decision. Shan’s
success is based on a dedicated team of professionals who
collectively embrace a unique combination of the following strong
core values.
Overviews on Planning of Shan Foods:
Planning is help to make success & achieve goals of every organization to
compete its competitor, without planning nothing could be done efficiently,
the planning of Shan Foods is based on the forecasting & average sales, they
do planning on below mentioned functions to meet their target.
Planning of Demand
•Planning of Raw Material
Planning of Production
Planning of Warehouse
Planning of Inventory
Planning of Distribution
Planning of Return
Manufacturing is done by monthly forecasting on the behalf of market
research & working on push system by 15 days inventory stock. They have
capacity to increase their production due to increase unpredictable demand,
they different production plan to fulfill seasonal requirement of demand,
like Ramadan, Eid etc.Push System
Shan foods is being followed make to Stock (push system), according the
demand forecast & planning. Warehouse is a commercial building which is
used for storage of inventories. They have in-house warehouse due to
reduce damage percentage of finished goods. As we know, foods item
should be keep in well temperature due hygiene purpose due to save the
health of humanity.
They have more than 150 vendors to supply the goods in market as well, all
finished goods are placed in proper shelf to maintain SKUs, & they have
much place to future expansion according projection base quantity or
market demand with the help average monthly sales report.
Benefits of In-house Warehouse:
It will reduce the damage cost of merchandise,
Reduce the transportation cost
Strong check & balance on inventory
Security System of Warehouse:
Shan Foods (Pvt.) Ltd. Also using the close circuit cameras at each entrance
exit points of warehouse to ensure workers will not be stole or misuse of
product. If somebody try to do such type of things so management
punished him to learn lesson for others.
INVENTORY MANAGEMENT SYSTEM:
Inventory management based on forecasting that was given by Marketing &
Sales department. On the basis of required demand, design Master
Production Schedule (MPS is a plan for individual commodities to produce
in each time period such as production, staffing, inventory, etc. It is usually
linked to manufacturing where the plan indicates when and how much of
each product will be demanded), also remember the MPS safety covers are
incorporate for meeting uncertainties, in order to achieve the following
objectives:
To maintain efficiency of operations.
To meet variation in product demand.
To allow flexibility in production scheduling.
To provide a safeguard for variation in raw material delivery time.
To take advantage of economic purchase order size.
In-transit inventory.
In-transit lead time.
Also continuous review the following system
Reorder point system and fixed order quantity system.
For independent demand items.
Tracks inventory position.
Includes scheduled receipts, on-hand inventory, and back orders (an un
filled customer order or demand against an item, whose current stock level
is insufficient to satisfy demand) For each of the preceding reasons, be
aware that inventory is costly and large amounts are generally undesirable.
Long cycle times are caused by large amounts of inventory and are
undesirable and also increase the following inventory relative cost as well
as a major cause to decrease profitability and competitiveness:
Holding / carrying cost.
Setup / production change cost.
Ordering cost.
Shortage cost.
According to inventory policy at Shan Foods, 15 days stock covers are kept
for Finished Goods, Packaging Materials covers are depend on the lead time
of each component like Hard Packs, Laminated rolls etc. These packaging
accessories are managed by procurement department according to BOM, &
fulfill the requirement of Purchase Order. Importance of Inventory
Management System Inventory management department is not important
only in Shan Foods but in every manufacturing industry, it plays a very vital
role in making the healthy profitable by efficient processes & timely
decisions. Reality is that if you do not have control of your inventory
management, you will be unable to determine that you should have how
much inventories on hand to handle the needs of your customers. Even
worse than that you will not have enough raw material or inventories on
hand to produce the products then, how do you meet the needs of your
customers. It is important to keep in mind there are several different
functions of inventory management such as:
raw material inventory keep on hand for production;
work in progress inventory which includes any of the goods that are in
the production process, and
finished goods inventory or the products that are ready to ship to
customers.
Without inventory management it would be difficult for any company to
maintain control and be able to handle the needs of their customers. It
should be known to the company where your inventory is and where it’s
going to fulfill the need of customer. Unless you can meet the needs of your
customers you will soon lose the market share and enables the competitors
to grab your market share. Inventory management has always been
important to sustain the growth and not ignore the importance of
inventory management in every aspect.
SHAN FOODS INVENTORY MANAGEMENT SYSTEM:
Shan Foods inventory management department is efficiently practicing and
managing their inventory in order to maintain their position and
availability of their stock in the market. Their Planning department leads
the whole and supply chain in Shan Foods like other leading organizations,
Procurement, logistics distribution/customer services, materials
management are under the dominancy of planning department.10
How Shan Foods Manage Their Inventory
In Shan Foods there are three types of inventory being managed.
Raw Material Inventory
Packaging Inventory
Finish good Inventory
Raw Material Inventory:
They have 15 days stock to fulfill the requirement. According to inventory
policy at Shan Foods, 15 days stock covers are kept for Finished Goods. The
efficient inventory management is when the demand is fulfilled as per the
customer required quantities and timelines.
Ordering Process of Raw Material:
In Shan Foods Raw material procured on the basis of Yearly Sales Report,
Monthly Sales report excluding seasonal quantity or occasional quantity
requirement.
Finish good inventory:
Finished goods inventory is managed through forecast which is given by
Marketing and Sales Department, on the basis of required numbers master
production schedule(MPS) is identified, in MPS safety covers are
incorporate for meeting uncertainties, according to inventory policy at
Shan Foods, 15 days stock covers are kept for Finished Goods. The efficient
inventory management is when the demand is fulfilled as per the customer
required quantities and timelines, at Shan Foods the inventory is kept
according to the sales requirement with safety covers of each SKUs, safety
covers are reviewed on the basis of peek and lean seasons to prevent
inventory obsoleteness
Packaging Inventory:
Packaging Materials and there inventory is managed through Forecast
which is given by Marketing and Sales department on the basis of that MPS
is identified, this MPS identify the requirement of packaging through Bill of
Material then MRP (Material Requirement Planning) created then Shan
Foods order their different supplier for different material accordingly an
then packaging material is manufactured and stocked. Its safety covers are
dependent on the lead time of each component like Hard Packs, Laminated
rolls etc. First in First out System (FIFO).Shan Food (Pvt.) Ltd. Using the
first in first out system, they manage their inventory by the placement of
items in shelf. Firstly they dispatched the older item rather than the new
item due to save the product expired. FIFO system also reduce the damage
the packaging of each item & also save the cost as well.
Counter Cycle Method:
Shan Foods (Pvt.) Ltd also using following counter cycle method to manage
& check &balance the finished goods inventory.
Physical Count:
The management staff of warehouse perform the physically count of each
SKUs on monthly base.
Electronic Count:
They also use the electronic count by System (Oracle) & generate the
reconciliation report by weekly basis. It will make working more efficiently
& provide actual figure of flow of SKUs. Stock Keeping Units (SKUs) Of Shan
Foods. Shan Foods have very diversified product line due to which they
have very large number of SKUs which are mention as below:
Spices more than 100 SKU’s
Desserts more than 25 SKU’s
•
Pickle 25 SKU’s Paste 3 SKU’s
Chutneys 6 SKU’s u’s
Recently launched successfully SHOOP Noodles.
It is very difficult for the company to maintain the demand and supply of
very large number of SKUS. With the help of state of the art planning
department Shan Foods is efficiently managing their inventory of each
SKUs on the basis of their demands. For example they have massive
demand of their chat Masala in the month of Ramadan so they efficiently
plan their production and inventory management in order to fulfill the
demand of the market for that SKUS.
Moreover they plan their production and managed the inventory of each
SKU according to the market demand. Shan Foods maintain their SKU’s by
monthly, fortnightly, annually internal & external audits.
Tools through Which Shan Foods Manage Their Inventory:
Following are the tools through which Shan Foods is managing their
inventory
Annual Operation Plan (AOP).
Monthly Forecast.
MRP.
Safety Covers.
Managing Fluctuation in Demand:
Shan Foods is effectively managing the fluctuation in demand of their SKUs.
Different occasions and seasons are kept in planning to meet the demand
variation:
Eid occasions are especially for spices, Chaat Masala, Desserts, and
Pickles etc.
Muharram-ul-Haram for Haleem Range.
Oriental Range for winter. KPIs (Key Performance Indicator) For
Evaluating Inventory Shan Foods is evaluating their inventory
management on the basis of following KPIs
Number of days in inventory.
Inventory Cost.
Inventory Availability.
Inventory Scoring recently implemented for Packaging Materials
Inventory.
CHALLENGES FACE IN INVENTORY MANAGEMENT
Following are the challenges faced by Shan Foods regarding inventory
management.
• As Shan Foods have very large number of SKUs for that inventory of
packaging material, work in progress inventory and finished goods inventory
are managed separately which is a big issue for Shan Foods.
Inventory managed cost are very high for Shan Foods Pvt Ltd
Due to managing huge inventory there large amount of capital got tight up.
• Shan Foods also faces space or warehousing infrastructure constraints due to
increasing in product line and product diversification.
Countering To the Challenges:
Inventory management is a critical and complex process which has a very huge
effect on organization if it is not effectively managed. It would be a huge cost
bear by the company if there are any loop holes in inventory management which
effect the whole organization and can yield in loss of sales and loss of customer
for life time Shan Foods Pvt Ltd is effectively managing their inventory in order
to have 100 percent availability in the market when needed. Their planning
department effectively planned the inventory of each SKUs and their finished
good as well as their packaging inventory throughout the year in order get
maximum edge in the market. As they effectively managed their inventory their
capital is utilized in an effective way. It is the policy of the company to manage
15 days buffer stock (safety stock) in order to tackle demand fluctuation.
Moreover company annually, monthly and fortnightly monitor the inventory
position and planned their production accordingly. This frequent monitoring
reduces the cost of inventory managed. Customer order filling rate is important
tool Shan food is using to monitor their inventory. Shan Foods was facing the
issue space and warehouses where they stocked their inventory but with the help
of proper planning and rental warehouses they are now effectively managing
their spacing and warehousing issues in cost efficient way. Moreover they
reduces the inventory of their SKUs which have less demand due to which they
safe space for the high demand SKUs. Moreover proper planning of each SkU’s
production and inventory management is according to their demand in market
and proper precaution is followed in order to effectively meet demand
fluctuation. They also monitor their inventory position on regular basis in order
to eliminate any short fall in inventory.
Overview on Return:
It is the very important & last step regarding the score of supply chain, after the
delivery of finished goods, Sometime the products are not up to the mark or
have some different issues due to which vendor send the product back, the ratio
of return little bit high in all product of Shan Foods.
Causes of Return:
Most common causes are Expiry Date Damage products during the logistics
activity and some others causes should be take a part of return, like production
issues, wrong delivery, and wrong quantity delivered, wrong challan. etc
CONCLUSION:
Inventory management is very important for every organization as it
has a direct impact on overall revenue of the company. There are
examples where companies are shut down or liquidate because of
poor inventory management. A huge amount cost bear by the
company if their inventory is not properly managed because if the
inventory got short it creates availability issue which yield in loss of
sale as well as loss of customer for life time. Shan Foods is effectively
managing their inventory by the help of integrated supply chain
department. Their planning department is effectively planning their
inventory of every SKU in order to eliminate their short fall in
inventory and have 100 percent availability in the market when
needed. The company is effectively managing the demand fluctuation
by proper planning and proper safety covers. Inventory management
is a very critical process for Shan Foods and they monitor it on regular
basis and planned their management accordingly.
APPENDIX
Questionnaire:
Q1: How Shan Foods inventory management department is working?
Please give us an overview of the department?
Q2: Why do you think this department is important for Shan Foods?
Q3. How Shan food is managing their inventory?
Q4: What are the key tools through which Shan Foods manage their inventory?
Q5: What are the basic ware house and inventory management issues
which shan food faces?
Q6: How you resolve these warehouse and inventory management issues?
Q7: What other issues you face regarding your inventory and what steps
you take to resolve it?
Q8. How many SKUs Shan food altogether have?
Q9: How you track, check and balance of these SKUs?
Q10: What are the key factors on which Shan Foods forecast the fluctuation in
demand?
Q11: How you manage the fluctuation in demand?
Q12: How you evaluate the performance of inventory management?
Q13: What are the KPIs on which you evaluate your inventory managements?
Q14: According to you what would be the impact on overall performance of the
company
Q15: If this department has some loop holes?