Inventory Control System On Three Products Of Three Supermarkets In Owerri

Project and Seminar Material for Mathematics and Statistics

Abstract

This research work entails the process involved in inventory control of three supermarkets on three products they sell. The supermarkets include Noble supermarket, Pick ‘n’ smile supermarket and Maris supermarket as a case study. We take their inventory on Candid Red Wine, So Klin Detergent (900g sachet) and Peak Milk Powder. In this research work, data for the observation were collected and analyzed using statistical inventory control models. The inventory models used here were Single item static model (with shortages not allowed) and single item static model (with shortages Allowed). These models are used to dictate shortcomings of the management and control of inventory in the supermarkets on these three goods.

Chapter One

1.1 Introduction

Inventory control involves provision for a flow of goods in and out of a business organization. Inventory control improves the marketing system by checking discrepancies and enabling effective planning. It is also applied to all production activities. Therefore, inventory control is quite useful in a marketing organization. It is very important to marketing process. Considerable attention has been given in recent years to viewing manufacturing facilities as production/inventory system. The framework reorganizes the importance of inventory.

However, it sometimes happens that the organization will find itself with more items in inventory than that maximum that is to say with an excessive inventory. The management of inventory systems typically involves keeping track of thousands of stock keeping units. Since competitive and economic advantages exist from efficient control of inventories, inventory control models have been developed to assist inventory management.

Inventory control system is based on recorded or theoretical (not actual) stock levels to determine a set of parameters that optimize inventory control. These parameters affect both operational and financial decisions. A recorded stock level, is considered accurate when the recorded level agrees with the actual stock level, otherwise there is an error. Inaccurate inventory records may result in out-of-stock condition that lower the service level and lead to loss of goodwill production time or sales.

The main objective of inventory control is to maintain a system which will minimize total cost and determine the optimum quantity of commodity to order for and when best to make the order. The two major systems are the “Re-order level system” and the periodic review system.

Re-order level system: This is the most commonly used to set quantity of stock for each item. This system which is more responsive to fluctuations in demand compared with periodic review system sets the value of three important level of stock as either check or trigger for management. The three important level of stock are as follows:

Re-order level = Maximum usage (per period) x maximum lead time.
Minimum Level (Lmin) = Re-order level – normal usage average lead time.
Maximum level (Lmax) = Re-order level + Economic order quantity (EOQ) – (Minimum usage x minimum lead time) where EOQ is associated with cost of ordering inventory.

Periodic Review system: This system sets a review period for each stock item at the end of which the stock level of the item is brought up to a predetermine value. The cost would be saved and profit is increased, when many items are ordered at the same time or in the same sequence. There is little or no chance of stock becoming obsolete since it is reviewed periodically.

1.2 Statement of Problem

The inventory control system has been undermined by supermarkets and other business organizations, which has created room for loss of goods or products and improper record keeping (stock keeping). As a result the following problems arise:

Lack of inventory control in the supermarkets and other business organizations.
Lack of optimum quantity of commodity to be ordered for and when best to make the order.
Improper management of stock in the supermarkets and other business organizations.

1.3 Aims and Objective

The aims and objective of the study are:

To examine the nature of stock control measures applied by the three supermarkets.
To attempt to provide alternative strategies on effective management of stock, where necessary in the supermarkets.
To determine the optimum quantity of commodity to order for and when best to make the order.
To maintain a system that will minimize total cost

1.4 Significance of the Study

Managing huge stock of a product is one of the most important jobs of wholesalers. A business must have enough space for storage purposes, together with a supply management system in place.

The study will help to prevent or check fraudulent activities in the business.
It will help to maintain accurate stock records
It will help in checking the expiry date management of the goods.
It will help in determine when the goods are to be replenished.
It help to determine product that is selling well and which stock of items that need to be reduced.

1.5 Scope of Study

The study is limited to three supermarkets in Owerri urban, Pick n’ Smile, Noble and Maris supermarkets. These are market oriented establishment and their sole operation is the purchase and resale of local and foreign products.

These supermarkets are the points of sales where the demand volumes of customers are relatively high to other retailers in the markets.

1.6 Definition of Terms

There are some terms that are used in inventory control, these includes:

Lead Time or Delivery Lags:

This is the time between the placement of an order and its receipt. Order for replenishment must be placed when inventory falls to the level of lead-time demand.

Economic Order Quantity (EOQ):

This is the external quantity ordered for which minimize total inventory cost.

Safety Stock:

This is the stock held to cover possible change in demand or supply during the lead time. It is also known as minimum stock.

Maximum Stock:

This is a level, as an indicator above which stock are too high.

Re-order Level Quantity:

This is the actual stock level that when reached causes an order to be placed.

Re-order Quantity:

This is the amount of stock that is ordered through the reorder level. It is normally the Economic order quantity or Economic basic quantity.

Inventory Cycle:

This is the part of an inventory graph that regularly repeats itself.

Length of Inventory:

This is the length of time over which an inventory cycle is extended.

Notations for the Models

D = Demand rate (quantity demanded per period)
Q = Quantity ordered per cycle
C = Production cost per item
Co = Set up cost (cost for ordering unit of item per period)
T = Run time
Ch = Holding cost per item per unit time
Cp = Purchase cost per cycle
to = Inventory cycle length
I = Average inventory level per cycle
CT = Total cost per unit of time
L = Lead time
P = Shortage penalty cost
S = Stock at hand, at the beginning of a cycle (as measured in demand).
R = Rate of supply per day when there is gradual replenishment due to season (as measured in Q).
C* = Optimal total cost per unit line
Q* = Optimal quantity or Economic order quantity (EOQ)
to* = Optimal inventory cycle length
S* = Optimal stock

Chapter Five

Summary and Conclusion

5.1 Summary of the Result

The summary of the findings and result of this reach work are as follows

The inventory control system of the three supermarket were profitable and beneficial on the sale of the three products, since there is higher Demand rate per day of the three products by the supermarkets.
The demand per day of the three are high, but Noble supermarket has lowest Demand rate among the three supermarkets, most significantly on the Demand for Candid Red Wine, where they recorded Noble = 10, Pick ‘n’ simile =21 and Maris = 19 from table 3.1,3.2. and 3.3 respectively
Using the Model of single item static with shortages allowed, it is observed that, if the same amount of Candid Red wine was supplied to the three supermarkets, Pick ‘n’ smile will have less optimal length of cycle.
It is also observed that in the preliminary analysis that the sum of CT ( total cost per unit of item ) that is CT of the three products Pick ‘n’ smile has highest value followed by Maris and then Noble from table 4.2
Pick ‘n’ smile 7175.70 +2520.60+3123.40 =12,819.70 .

Maris – 6537.65+284.82+3389.01 = 12109.48

Noble – 3435.50+2424.10+2341.93 = 8201.53

If shortages are allowed, we verified that for a product like Candid Red wine, the Maximum shortage (Pmax), the supermarkets received is not significantly high relative to the purchases cost

5.2 Recommendation

From the finding of this research work, the following recommendations were made

Attempts should be made to improve demand of Candid wine in Noble supermarket where the demand was the lowest among the supermarkets from table 3.1, 3.2 and 3.3 of Chapter three
Attempts should be made to improve the quality or type of goods sold, in order to record high demand or Economic order quantity EOQ like Candid Red wine .
The three supermarkets should try to avoid shortages on Candid Wine, since the shortage penalty will be directly added on the selling price of the product at the expenses of the customers
The management should be encouraged to the use of advertisement of any product to be known to consumers or people around.
Effort should be put in the supermarkets to improve their standard more especially Noble supermarket.

Project Material Download