INVENTORY CONTROL SYSTEM ON THREE PRODUCTS OF THREE SUPERMARKETS IN OWERRI, IMO STATE.
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.
TABLE OF CONTENTS
Approval Page i
Table of Content vi-vii
1.1 Introduction 1-5
1.2 State of Problem 5-6
1.3 Aims and Objective 6
1.4 Significance of Study 6-7
1.5 Scope of Study 7
1.6 Definition of Terms 8-10
Literature Review 11-16
3.0 Methodology 17
3.1 Data Collection and Methodology 17
3.2 Limitations 17
3.3 Method of Analysis 18
3.4 Data Presentation 18-21
4.1 Data Analysis 22-28
4.2 Interpretation of Result 28-29
5.1 Summary of Result 30-31
5.2 Recommendation 31-32
5.3 References. 33-34
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:
i. Re-order level = Maximum usage (per period) x maximum lead time.
ii. Minimum Level (Lmin) = Re-order level - normal usage average lead time.
iii. 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.
Inventory control can be represented graphically relatively to the information obtained during inventory control system.
Inventory graph here, represents the control of the stock from the stores at a steady rate of q1 per T. Here, the graph can be called a periodic review graph.
Then Average inventory level from the graph
= Area A + Area B + Area C
= Area A + Area B + Area C
Since the internal or lead time and the time of replenishment are equal over the time of stock control.
Inventory Model depends on the nature of the demand of that commodity. The demand may be deterministic (known with certainty) or probabilistic (described by probability density). Inventory model includes the following:
a. Single item static model (shortages not allowed)
b. Single item static model (Shortages allowed
c. Adapted model with gradual replenishment.
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:
1. Lack of inventory control in the supermarkets and other business organizations.
2. Lack of optimum quantity of commodity to be ordered for and when best to make the order.
3. Improper management of stock in the supermarkets and other business organizations.
1.3 AIMS AND OBJECTIVE
The aims and objective of the study are:
i. To examine the nature of stock control measures applied by the three supermarkets.
ii. To attempt to provide alternative strategies on effective management of stock, where necessary in the supermarkets.
iii. To determine the optimum quantity of commodity to order for and when best to make the order.
iv. 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.
a. The study will help to prevent or check fraudulent activities in the business.
b. it will help to maintain accurate stock records
c. It will help in checking the expiry date management of the goods.
d. It will help in determine when the goods are to be replenished.
e. 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