Most of the organizations in the sector of retails have invested a huge amount of money in inventories. Inventory management is considered very important for supermarkets due to the fact that it allows the replacement of a great variety of products at the right time and with low costs. As a consequence, organizations are focusing on controlling the capital in the activities involved in inventory management. Additionally, this field presents many important opportunities for potential improvements in the sector retails.
To achieve this, supermarkets are using different theologies and techniques for inventory management which include inventory control systems, complex decision models and decision rules. Easter (2006, p. 1) pointed out that the objective of inventory control is often to balance conflicting goals. One goal is, of course, to keep stock levels down to make cash available for other purposes’. Despite advances in technology and new and modern techniques in inventory management, Augural and Smith (2009) indicated that there are several cases of archaic systems and planning processes used by companies in the sector of retails.
This is due to inadequate personnel and controls, low technology infrastructure and insufficient budget for maintaining a continual improvement and hence generating a poor inventory management. This essay aims to show two crucial steps for inventory management in the sector of retails, focusing on supermarket: (1) The symptoms of the poor inventory management and (2) the methods and techniques for improving. Firstly, chapter 3 describes some of the most frequent symptoms of the poor inventory management.
Then, chapter 4 shows the methods and techniques used for improving inventory management, evaluating critically their applications, benefits and problems in supermarkets. 2. Definitions Inventory: It is any material which is used to satisfy customer demand. It will be present in the organization in different forms: raw material-working process-finished goods. Inventory turnover: The number of time which a stock have been renew in a period, normally a year. Inventory turnover rate: It is used to measure the performance in inventory management in an organization. 3. Symptoms of poor inventory management 3. . Inventory turnover too low A lower rate of inventory turnover in a supermarket means the organization has too many inventory and expensive costs in keeping them. Due to the fact that the parameters have a great composition of products and most of them are perishable, they need to keep a good rate of inventory turnover and avoid spending huge amount of money in hold them. These are some of the costs associated with inventories: Storage costs: utilities, warehouse personnel, maintenance of building and equipment for special conditions for some products, warehouse security, deterioration and obsolescence.
According to Magna, Lanai, Butcher and Captured (2012), keeping inventory costs money and thus could affect the investments and cash flow of the company. 3. 2. Periodic lack of sufficient storage space Lack of sufficient storage space is closely related a lower rate of inventory turnover. The bad inventory management in a supermarket will generate a lower rate of inventory turnover; as a consequence the dispatch of products from the storage to final destination will be postponed, and hence causing an excessive amount of goods to be in storage.
The global tendency to use higher variety of products and the aggressive competition in business retail does not lend itself to poor space management in the storage. Remind (2008) reported that warehouse is considered one of the most relevant supply chain components and it must keep a great reference. Storage has to obey regulations and follow procedures for maintaining a good flow of product distribution, but with an excessive inventory this will be impossible to complete. This is a list of possible problems in a supermarket as a consequence of excessive inventory in the warehouse: Goods inaccessible and deteriorated for saturation.
Disorder and delay in goods distribution. Bad use of the warehouse zones. Accidents for disorder and saturation. Handling problems for lack of space. Handling equipment without access (racks, transporters and hi-lift loaders). 3. 3. Dissatisfied customers Dissatisfied customers will generate a higher costumer turnover rate. The satisfaction of the costumer is the main factor which decides the future intentions of purchase. Sumatra, Vida and Awash (2014) considered that there are various drivers which direct to costumer gratification.
Two drivers which are related with inventory management in a supermarket are mentioned by them: “the physical aspect” and “characteristics of the product”. If the costumers are not buying occasioned by low satisfaction with these drivers, it means there is a problem of poor inventory management, probably due to the fact that the products are deteriorated and obsolete. 4. Methods and Techniques used for improving inventory management 4. 1 . A-B-C Analysis cycle counting method The A-B-C analysis cycle counting is a method based in the Praetor’s law which permits the classification of the items in three groups (A, B and C).
Viable (1996) stated that according to Praetor’s law, nearly 20 per cent of the products generate 80 per cent of the profits and inventory investment. In a supermarket the items do not have the same demand rates, as a consequence they are classified according to the next table: 20% of products 80% of the company’s revenue and inventory investment These are called products “A” 0% of products 15% of the company’s revenue and inventory investment These are called products “B” 50% of products 5% of the company’s revenue and inventory investment These are called products “C” Table 1 : A-B-C Classification.
Viable (1996, p. 36) Strength of this argument is that, this method permits the leaders to focus on applying the best practices of managing in the 20% of items that make up 80% of the company’s profits and inventory investment. It appears that A-B-C analysis cycle counting method has been applying by many companies in business retails, using as main criteria and categorization the money alee according to Praetor’s law.
The key problem with the argument is that organizations are different and the criteria and categorization preferences can change from industry to industry. Kola & Soul (2014) found that, the most important consideration is analyses our company in a specific context and consider other inventory characteristics for our A-B-C classification, such as lead time, ordering cost, durability, etc. Therefore, these new distribution may help to improve our inventory investment. One major drawback of this theory is that it should be used in an entire 12-month yes count period.
This would suggest that for huge supermarkets with seasonal and changing products is impossible to manage this method due to the fact that items adopted in order to calculate A-B-C classification are not part of the inventory over the whole year. In many cases, huge supermarkets generally appear to use complex computer system for managing their items with multiple characteristics. However, according to Freest (1981), ‘There are many small retailers who could benefit from computerized processing for inventory control but who cannot afford such system’.
It is argued that, hose small supermarkets could take advantage of A-B-C classification and reinforce their inventory management with inexpensive control system, such as electronic cash registers which help collect products on an established coding plan and permit compute items. The main point to consider in Praetor’s law is establishing a criteria and categorization according to our business reality and supports it with modern computerized systems. 4. 2.
Just in time TIT) program According to Alai & Change (2009), ‘KIT is a management philosophy that emphasizes waste reduction through continuous process improvement and it helps firms to achieve the dual advantages of cost reduction and quality improvement simultaneously. In the inventory management, KIT considers stock as wasteful and it should be completely eliminated. Therefore, if a supermarket wants to reduce the level inventory to zero, KIT recommends get the product according to require by the costumer and thus reduce inventories, setup costs and optimize material flow from suppliers.
The main advantage of the theory is that the supermarket will reduce all the costs associated to inventory which will be consider an excellent goal in a supermarket, due to the huge amount of products. One important issue is that if the supermarket wants to take a widely advantage of this methodology, it would use both, A-B-C Analysis and KIT program. Firstly, it should make an A-B-C classification considering the cost of inventory as criteria for categorization. Therefore, in A should be the items associated to highest cost.
Secondly, KIT program should be applied only to these items classified in A. As a result, the improvement applied will have an exceptional impact in the organization and thus reflecting in a great amount of money saved. It is argued that KIT program implies that supermarkets have to improve the allegations with their suppliers, developing strategies alliances and involving them in the business in order to provide organization with the items required by costumers at the right time.
The key problem with the theory is that due to the fact that it is a system in which the supermarket depends completely on supplier, if there is a fault or a problem this will affect the flow; and hence the products will not arrive at the supermarket when required. 5. Conclusion It is clear, therefore, that an excellent inventory management in a supermarket offers great benefits which are reflected in money saved. Managers have to choose the best methodology for inventory control considering the real situation of the company and different factors which affect the operation.
In addition, workers have to be trained to identify the distinct symptoms around their workplace related to poor inventory management. These symptoms should be considered a first action for identifying inventory problems and a deep analyses is recommended for finding out the real problem level and the location in supply chain. The supermarkets will never be completely free of inventory problems, therefore organizations must support the management methodology selected with well- structured processes, personnel skilled and technology.
