INVENTORY MANAGEMENT TECHNIQUE USED IN RETAIL INDUSTRY

A CASE STUDY OF VISHAL MEGA MART

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION

UNDER THE GUIDANCE OF: SUBMITTED BY:

Ms. Apoorvi Tondon Udit

CONTENTS

INTRODUCTION & SCOPE OF THE STUDY

Introduction..1-13

About retail industry....14-19

About Vishal Mega Mart..20

Objective of the Study...........21

Scope of study......22

LITRATURE REVIEW

Introduction...23-33

RESEARCH METHODOLOGY

Introduction......34

Research design.......34

Collection of Data....35

Research tool....35

Area of study...35

Sampling technique.....35

Questionnaire Characteristics..36

LIMITATION

ANALYSIS OF DATA...37

CONCLUSION.45

SUGGESTION 46

BIBLOGRAPHY.....48

ANNEXURE....49

ACKNOWLEDGEMENT

Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others.

With regard to my project on Inventory management technique used in retail industry. I would like to thanks each and every one who offered help, guidelines and support whenever required.

I am extremely greatful to my faculty guide, for her guidance and timely suggestion. I would like to all my friends of Khandelwal College for giving their valuable inputs and time. The guidance help and cooperation of my mentor Ms. Apoorvi Tondon is being a constant source of motivation.

This research was a good exposure that will definitely help me in my professional career.

UDIT

MBA

DECLARATION

This project has been undertaken as a partial fulfillment of the requirement for the award of the degree of Master of Business Administration of Gautam Buddha Technical University.

The project was executed after the third semester under the supervision of Ms. Apoorvi Tondon.

Further I declare that this project is my original work and the analysis and finding are for academic purpose only. I cannot produce it in any other diploma and degree course.

INTRODUCTION & SCOPE

Introduction

In our daily life, we observe that a small retailer know roughly the demand of his customers in a month or a week, and accordingly places orders on the wholesaler to meet the demand of his customers. But, this is not the case with a manager of a big departmental store or a big retailer, because the stocking in such cases depends upon various factors, e.g. demand, time of ordering, lag between orders and actual receipts, etc. so the real problem is to have a compromise between over-stocking and under-stocking. Within this perspective I selected a study on inventory management technique used by Vishal Mega Mart. Inventory refers to stocks, goods or anything necessary to do business. This study provides me the knowledge about significance of inventory management in retail industry. An effective inventory management technique will able to provide reduction in overall inventory cost in the organization.

The primary objective of inventory management is to determining, controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. By proper planning it is possible for a company to reduce its levels of inventories to a considerable degree, without any adverse effect on production and sales, by using simply inventory planning and control technique.

An efficient system of inventory management will determine What to purchase? How much to purchase? From where to purchase? Where to store?

The study of such type of problems is known by the term Material Management or inventory Control. The inventory control may be defined as follows:

Definition The function of directing the movement of goods through the entire manufacturing cycle from the requisitioning of raw materials to the inventory of finished goods orderly mannered to meet the objectives of maximum customer-service with minimum investment and efficient (low-cost) plant operation.

The models here limited mainly to the elementary type, because the analytical study of the other cases be-comes more difficult. After a general discussion of each indicated type of model, we shall give many interesting solved examples so that all the necessary ideas may be clear to the students. We shall also discuss another class of inventory models, namely Inventory Models with price Breaks (i.e. Quantity Discount Models).

What is inventory?

In broad sense, inventory may be defined as the stock of goods, commodities or other economic resources that are stored or reserved in order to ensure smooth and efficient running of business affairs.

The inventory may be kept in any of the following forms:

(i) Raw material inventory, i.e. raw materials which are kept in stock for using in the production of goods.

(ii) Work-in-process inventory, i.e. semi finished goods or goods in process which are stored during the production process.

(iii) Finished goods inventory i.e. finished goods awaiting shipment from the factory.

(iv) Inventory also include: furniture, machinery, fixtures, etc. The term inventory may be classified in two main categories.

1. Direct Inventories:

The items which play a direct role in the manufacture and become an integral part of finished goods are included in the category of direct inventories. Those may be further classified into four main groups:

(a) Raw material inventories are provided

(i) For economical bulk purchasing

(ii) To enable production rate changes

(iii) To provide production buffer against delays in transportation

(iv) For seasonal fluctuations.

(b) Work-in-process inventories are provided

(i) To enable economical lot production

(ii) To cater to the variety of products

(iii) For replacement of wastages

(iv) To maintain uniform production even if amount of sales may vary.

(c) Finished-goods inventories are provided

(i) For maintaining off-self delivery

(ii) To allow stabilization of the production level

(iii) For sales promotion.

(d) Spare parts

2. Indirect Inventories:

Indirect inventories include those items which are necessarily required for manufacturing but do not become the component of finished production, like oil, grease, lubricants, petrol, office-material, maintenance material, etc.

Types of Inventory

Basically, there are five type of inventory:

I. Fluctuation Inventories: These have to be carried because sales and production times cannot be predicted accurately. In real-life problems, three are fluctuations in the demand and lead-times that affect the production of items. Such type of reserve stocks or safety stocks is called fluctuation inventories.

II. Anticipation Inventories: These are built up in advance for the season of target of large sales, a promotion program or a plant shut-down period. In fact, anticipation stores the men and machine hours for future requirements.

III. Cycle (lot-size) Inventories: In practical situations it seldom happens that the rate of consumption is the same as the rate of production or purchasing. So the items are procured in longer quantities than they are required. They results in cycle (or lot-size) inventories.

IV. Transportation Inventories: Such inventories exist because the materials are required to move from one place t another. When the transportation time is long, the items under transport cannot be served to customers. These inventories exist solely because of transportation time.

V. Decoupling Inventories: Such inventories are needed for meeting out the demands during the decoupling period of manufacturing or purchasing.

Inventory decisions

The managers must take two basic decisions in order to accomplish the functions of inventory. The decisions made for every item in the inventory are:

(i) How much amount of an item should be ordered when the inventory of that item is to be replenished?

(ii) When to replenish the inventory of that item?

Inventory model development Process?

As explained earlier, inventory models are concerned with two main decisions: how mush to order at a time and when to order so as to minimize the total cost? The sequence of basic steps required for developing an inventory model may be organized as follows:

Step 1: -First take the physical stock of all the inventory items in an organization.

Step 2:-Then, classify the stock of items into various categories. Although several methods are available to classify the inventories; but the selected method must serve the objectives of inventory management. For example, inventory items may be classified as raw materials, work-in process, purchased components, consumable stores and maintenance spares, and finished goods, etc.

Step 3:- Each of above classifications may be further divided into several groups. For example, consumable stores and main tenancy spares can be further divided into the following groups:

Step 4:-After classification of inventories, each item should be assigned a suitable code. Coding system should be flexible so that new items may also be permitted for inclusion.

Step 5:-Since the number of items in an organization is very large, separate inventory management model should be developed for each category of items.

Step 6:- Use A-B-C or V-E-D classification (as discussed in the next chapter) which provide a basis for a selective control of inventories through formulation of suitable inventory policies for each category.

Step 7:-Now decide about the inventory model to be developed. For example, fixed-order-quantity system may be developed for A class and high valued B class items; whereas periodic review system may be developed for low valued B class and C class items.

Step 8.For this, collect date relevant to determine ordering cost, shortage cost, and inventory carrying cost. Etc.

Step 9.Then, make an estimate of annual demand for each inventory item and their prevailing market price.

Step 10. Estimate lead-time, safety stock and reorder level, if supply is not instantaneous. Also, decide about the service-level to be provided to the customers.

Step 11.Now develop the inventory model.

Step 12.Finally, review the position and make suitable alterations, if required, due to current situations or constrains[footnoteRef:1]. [1: ]

Before we proceed to discuss inventory models, it is very desirable to consider briefly the costs involved in the inventory decisions:

1. Holding Cost (C1): The cost associated with carrying or holding the goods in stock is known as holding or carrying or holding the goods in stock is known as holding or carrying cost which is usually denoted by C1 per unit of goods for a unit of time. Holding cost is assumed to vary directly with the size of inventory as well as the time the item is held in stock. The following components constitute the holding cost:

(i) Invested Capital Cost. This is the interest change over the capital investment. Since this is the most important component, a careful investigation is required to determine its rate.

(ii) Record-keeping and administrative. Cost signifies the need of keeping funds of maintaining the records and necessary administration.

(iii) Handling Costs. These. Include all costs associated with movement of stock, such, such as cost of labour, over head cranes, gantries and other machinery required for this purpose.

(iv) Storage Costs. These involve the rent to storage space or depreciation and interest even if the own space is used.

(v) Storage Costs. These involve the rent of storage space or depreciation and interest even if the own space is used.

(vi) Taxes and Insurance Costs. All these costs require careful study and generally amount to 1% to 2% of the invested capital.

(vii) Purchase price or Production Costs. Purchased price per unit item is affected by the quantity purchased due to quantity discounts or price-breaks. Production cost per unit item depends upon the length of production runs. For long smooth production runs this cost is lower due to more efficiency of men and machines. So the order quantity must be suitably modified to take the advantage of these price discounts.

If p is the purchase price of an item and I is the stock holding cost per unit time expressed as a fraction of stock value (in rupees), then the holding cost C1 = IP.

(viii) Salvage Costs or Selling Price. When the demand for an item is affected by its quantity in stock, the decision model of the problem depends upon the profit maximization criterion and includes the revenue (sales tax & etc.) from the sale of the item. Generally, salvage costs are combined with the storage costs and not considered independently.

2.Shortage Costs or Stock-out Costs (C2): The penalty costs that are in incurred as a result of running out of stock (i.e., shortage) are known as shortage or stock-out costs. These are denoted by C2 per unit of goods for a specified period.

These costs arise due to shortage of goods, sales may be lost, and goods will may be lost either by a delay in meeting the demand or being quite unable to meet the demand at all. In the case where the unfilled demand for the goods can be satisfied at a latter date (backlog case), these costs are usually assumed to vary directly with the shortage quantity and the delaying time both. on the other hand, if the unfilled demand s lost (no backlog case), shortage costs become proportional to shortage quantity only.

3. Set-up Costs (C3): These include the fixed cost associated with obtaining goods through placing of an order or purchasing or manufacturing or setting up machinery before starting production. So they include costs of purchase, requisition, follow-up, receiving the goods, quality control, etc. these are also called order costs or replenishment costs, usually denoted by C3 per production run (cycle). They are assumed to be independent of the quantity ordered or produced.

Why Inventory Is Maintained?

As we aware of the fact that the inventory is maintained for efficient and smooth running of business affairs. If a manufacturer has no stock of goods at all, on receiving a sale-order he has to place an order for purchase of raw materials, wait for their receipt and then start his production; thus, the customers will have to wait for a long time for the delivery of the goods and may turn to other suppliers. This results in a heavy loss of business. So it becomes necessary to maintain an inventory because of the following reasons :

Inventory helps in smooth and efficient running of business.

Inventory provides service to the customers immediately or at a short notice.

Due to absence of stock, the company may have to pay high prices because of wise purchasing. Maintaining of inventory may earn price discount because of bulk-purchasing.

Inventory also acts as a buffer stock when raw materials are received late and so many sale-orders are likely to be rejected.

Inventory also reduces product costs because there is an additional advantage of batching and long smooth running production runs.

Inventory helps in maintaining the economy by absorbing some of the fluctuations when the demand for an item fluctuates or is seasonal.

Pipeline stocks (also called process and movement inventories) are also necessary where the significant amount of time is consumed in the trans-shipment of items from one location to another.

Mathematically, the problem of maintaining the inventory arises due to the fact that if a person (e.g., a big retailer) decides to have a large stock, his holding cost C1 increases but his shortage cost C2 and set-up cost C3 decrease. On the other hand, if he has small stock, his holding cost C1 decreases but shortage cost C2 and set-up cost C3 increase. Similarly, if he decides to order very frequently, his ordering cost increases while other costs may decrease. So it becomes necessary to have a compromise between over-stocking and under-stocking by making optimum (most favorable) decisions by controlling the value of some variables which are at our disposal.

Variables in Inventory Problem

We shall now proceed to classify the variables which are involved in an inventory problem.

The variables used in any inventory model are of two types :

(a) Controlled variables,

(b) Uncontrolled variables.

a) Controlled Variables:

The following are variables that may be controlled separately or in combination:

1) How much quantity acquired (by purchase, production, or some other means).

This may be adjusted for each type of resources separately or for all items collectively in one of the following ways:

(i) The quantity to be ordered should be q quantity units;

(ii) The quantity to be ordered should be such as to raise the stock level to S quantity units;

(iii) The quantity to be ordered should be such as to raise the stock level on hand and on order to z.

2.The frequency or timing of acquisition. How often or when to replenish the inventory?

The inventory should be replenished when

(i)The amount in stock is equal to or below S quantity units. Or

(ii)The amount in stock and the amount of order are equal to or below z. Or

(iii) At every t time units.

3. The completion stage of stocked items.

More finished the goods, lesser the delay in meeting the demands. But, on the other hand higher will be the cost of holding them in stock. Lesser finished the stock items, longer the time in meeting the demands, consequently lesser the cost of holding in stock.

Most of the inventory models involve only first two types of control- led variables.

Uncontrolled Variables:

The following are the principal variables the may not be controlled.

(1) The holding costs (C1), shortage or penalty costly (C2), set-up costs (C3).

(2) Demand (the number of items required per period).

We note that it is not necessarily the amount sold, because some demand may go unfilled because of shortages or delays. It is, in fact, the demand that would be sold if all that is required were available. The demand pattern of items may be either deterministic or probabilistic.

In the deterministic case, it is assumed that the quantities needed over subsequent periods of time are known exactly. Further, the known demand may be fixed or variable with time. Such demands are called static and dynamic respectively.

The probabilistic demand occurs when the demand over a certain period of time is not know with certainty; but its pattern can be described by a known probability distribution. A probabilistic demand may be either stationary or non-stationary over time.

(3) Amount delivered (supply of goods).

The supply of goods may be instantaneous or spread over a period of time. If a quantity q is ordered for purchase or production, the amount delivered may vary around q with a know probability density function.

About Retail Industry

Retailing, in a laymans language involves the procurement of varied products in large quantities from various sources/producers and their sales in small lot for direct consumption to the purchaser. Retailing is the business where an organization directly sells its products and services to an end consumer and this is for his personal use. Whenever an organization manufacturing or a whole seller sells directly to the end consumer it is actually operating in the Retail industry. The retail industry is divided into organized and unorganized sectors. Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local vendors, owner managed general stores, convenience stores, hand cart and pavement vendors, etc.

With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700,000,000sqft (65,000,000m) as compared to today. Current projections on construction point to a supply of just 200,000,000sqft (19,000,000m), leaving a gap of 500,000,000sqft (46,000,000m) that needs to be filled, at a cost of US$15-18 billion.

The Indian retail industry is the fifth largest in the world. India retail industry is one of the fastest growing industries in India. The India retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2011. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2011.

The empowered Indian consumer and changing shopping patterns have paved the way for modern retailing in India. Multi- stored malls, huge shopping centers, and sprawling complexes which offer food, shopping, and entertainment all under the same roof are springing up in every corner of tier II and tier III cities.

Indian retail market is the fifth largest retail destination globally. The industry raked in $ 25.44 billion turnover in 2007-08 as against $ 16.99 billion in 2006-07, a whopping growth rate of 49.73 per cent. The industry is estimated to grow from the $ 330 billion in 2007 to $ 427 billion by 2010 and $ 637 billion by 2015. Modern retail is likely to increase its share in the total retail market to 22 percent by 2010.

India has one of the largest number of retail outlets in the world. Of the 12 million retail outlets present in the country, nearly 5 million sell food and related products. Organized retail has increased its share from 5 per cent of total retail sales in 2006 to 8 per cent in 2007. The fastest growing segments have been the wholesale cash and carry stores (150 per cent) followed by supermarkets (100 per cent) and hypermarkets (75-80 per cent). The organized segment is expected to account for 25 per cent of the total sales by 2011. There is a paradigm shift from traditional forms of retailing into a modern organized sector. Mall space, from a meager one million square feet in 2002, is expected to touch 40 million square feet by end-2007 and an estimated 60 million square feet by end-2008. The number of operational malls is estimated to be more than double to over 412 with 205 million square feet by 2010 and further 715 malls by 2015, on the back of major retail developments even in tier II and tier III cities in India. India's luxury market, estimated to be the 12th largest in the world. It is growing at the rate of 25 per cent per annum.

The Indian luxury retail market is estimated to leap-frog from around $ 3.5 billion to $ 30 billion by 2015. The branded segment comprises $ 701.7 million of the total kids' apparel market-size of over $ 3 billion. Kids' retailing segment is expected to touch annual growth of 30-35 per cent. Internet promotes e-tailing-the online version of retail shopping. An estimated 10 per cent of the total e-commerce market is accounted by e-tailing. The e-tail market is estimated to grow by 30 percent to $ 273.02 million in 2007-08, from $ 210.01 million in 2006-07. Retail franchising has been growing at the rate of 60 per cent in the last three years and is set to grow two-fold in the next five years. Rural retail market is estimated to cross $ 45.32 billion mark by 2010 and $ 60.43 billion by 2015 India's vast middle class with its expanding purchasing power and its almost untapped retail industry are key attractions for global retail giants wanting to enter new markets[footnoteRef:2]. [2: ]

The Indian retail industry has strong linkages with the economic growth and development of the economy. It is primarily characterized by its hierarchical growth structure, high working capital requirements etc. The factors such as rising urbanization, growing consumer class, growing per capita expenditure, greater interest evinced by the Venture capitalists / Private equity firms in the industry etc. have been driving the growth of organized retail. The growth of modern retailing has led to the emergence of varied formats such as Departmental stores, Supermarkets etc. In addition, few other formats such as rural retailing, E-retailing, luxury retailing etc. too have found favors with the Indian retailers. Each format being distinct from the other, the viability of their operations depends upon various factors such as average footfalls, sales per sq.ft etc. However the numerous licensing requirements as compared to other countries have proved to be a bottleneck in the growth of Indian retailing[footnoteRef:3]. [3: ]

Growth in organized retail:

In sharp contrast to the global retail sector, retailing in India though large in terms of size is highly fragmented and unorganized. With close to 12 million retail outlets India has the largest retail density in the world. CII Mc Kinsey Report titled[footnoteRef:4]however, most of these retail outlets belong to the unorganized sector. The inability of the Unorganized sector to offer a wide range of products along with artificially inflated costs due to Various factors have presented opportunities for growth in the organized retail sector Migration from unorganized to organized retail has been visible with economic development in most economies. [4: ]

The Indian retail industry is evolving in line with changing customer aspirations across Product groups, with modern formats of retailing emerging. Organized retail derives its advantages in Generating operational efficiencies while simultaneously catering to rising consumer aspirations. Size drives economies on procurement, and lowers logistics and marketing costs while delivering better value to customers in terms of lower price, better quality, greater selection, improved service and in store ambience.

Drivers for retail transformation in India:

A number of factors that drive transformation in retail such as income growth, changing demographic profiles and socio-economic environment are already in place in India. However, organized retail has to overcome significant challenges in terms of regulations and infrastructural barriers in order to realize its full potential. Availability of quality retail space has been one of the main constraints for development of organized formats in India. In the past, negative yield spread on leased property and lack of bank funding due to unorganized property market resulted in a dearth of quality retail space in the country. The spread between yield on property and its financing cost has turned positive with the fall in interest rates. Attractive yields on investments have resulted in sharp increase in property development. Consumerism and brand proliferation has been another enabler for organized retailing in India. Most of the worlds leading brands are now present in India.

Challenges for organized retail:

There exist differential sales tax rates across states in India .This adds to cost and complexity of distribution as this necessitates multiple warehouses and does not allow for centralization of certain procurements given the incidence of local levies. At the same time, there is large-scale sales tax evasion by smaller stores who derive significant cost advantage through such evasion. The retail sector has not been granted industry status, limiting funding from banks and financial institutions.

The capital requirements for a retailer are in real estate (which banks have historically restricted lending to) and for working capital requirements. While some of the leading retailers are still able to get bank funding, the smaller ones are constrained for growth funding.Similarly, equity options are also restricted with Foreign Direct Investment not being permitted in the retail sector. FDI restrictions have also restricted entry of international majors in retailing in India, which could have otherwise helped the industry develop with funding as well as bringing in of best practices and systems. The availability of trained manpower poses a key risk for the retail sector. The ability of the retail business to hire and retain quality people is under pressure. Supply chain management efficiencies are essential to retailers to maintain and improve margins. In India, both vendor management and logistics management are still undeveloped. However, with growing size of operations, supply chain efficiencies will become a key differentiator of profitability in retail[footnoteRef:5]. [5: ]

About Vishal Mega Mart

Vishal retail limited start with one store enterprise in 1986 in Kolkata (Erstwhile Calcutta) is today they have 10 warehouses that cater to 180 showrooms in 24 states/100 cities[footnoteRef:6]. Indias first hyper-market has also been opened for the Indian consumer by Vishal. Situated in the national capital Delhi this store boasts of the single largest collection of goods and commodities sold in one roof. [6: ]

Vishal Mega mart is a major industry in retail sector. It serve vast range of product to our customer like cloth, fashion accessories, food & grocery, footwear, beauty products etc. Vishal mega mart is one of fastest growing retailing groups in India.

Its outlets cater to almost all price ranges. The showrooms have over 70,000 products range which fulfills all household needs, and can be catered at one roof. Vishal have centralized purchasing system, due to this they can able to provide good quality of product at competitive price to our customer.

They believe that Quality Control is the key to success. Their goal is to give the customer with the best quality and value for his money.

Vishal mega mart have own distribution network and logistics to perform all the activities to ensure that goods are dispatched in right quantities and sufficient time in the hand to promptly fulfillment of customer demand and optimum level of inventory at all the stores.

Objectives

In order to conduct the study I defined the research objectives as follow:

1. To study the inventory management technique used by Vishal Mega mart This objective is defined to have a preliminary study about the functioning of inventory management of Vishal Mega Mart.

2. To know the effectiveness of inventory management technique followed by Vishal Mega mart- This objective is defined to know what advantages they are receiving for using these inventory management techniques use by Vishal Mega Mart.

3. To suggest suitable improvement in existing process of inventory management - This objective is defined to provide some suitable solution for more effectively management of inventory in the Vishal Mega mart.

Scope of the study

The strong inventory management technique provides facility to maintain adequate level of inventory at the store. With the help of adequate inventory level they optimize our inventory position & reduce overall inventory cost. With the help of this organization can control working capital requirement.

The research report will provide the facility to know how retail industry make proper control over the inventory, so they can able to make proper balance between demand and supply. The research report will also used in similar kind of retail industry, those who are in the same business.

LITERATURE REVIEW

In order to conduct this study an extensive literature review was done to get insight into the research question. The literature review was conducted by accessing the resources from published literatures. Total seven literatures for relevant aspects of research problems were reviewed in this study.

Mr. Linda Mullinix, Mr. Shannon Cunningham (2007) did their study on effectiveness of inventory management in the organization. This study has been organized under four macro topics, consistent with the study scope.

1. Customer Service Level

2. Carrying Cost of Inventory

3. Inventory Turnover and Return on Investment

4. Excess Inventory and Shrinkage

Within these four macro topics, eight key findings emerged:

Successful organizations recognize the criticality of customer service level. For this reason, they measure customer service level on a regular, ongoing basis. Establishing customer service level goals and having a program in place to achieve those goals creates a win-win environment for the entire supply chain. Due to their substantially different markets, all companies use unique solutions, formulas, and methodologies successfully for demand forecasting and determining safety stock quantities.

Open and continuous communication across the inventory management process is extremely important to inventory management success. They are realize that carrying cost of inventory is a critical aspect of their inventory management processes. All study participants consider turnover a less important measurement than customer service level and return on investment. They are favor a single source of supply for as many products as possible to improve the consistency of products offered to customers and to reduce the number of stock keeping units (SKUs) maintained in inventory. They found excess inventory as a major challenge and have a programand dedicated peoplein place to remove and liquidate excess inventory and dead stock.

Mr. Sunil Babbar Mr. Sameer Prasad did their study on International purchasing, inventory management and logistics. Liberalization of economies and the lowering of trade barriers are ushering international operations into an era of unprecedented growth. Consequently, there has been a dramatic increase in the cross-border inter- and intra-company transfer of goods. As global transactions increase, international purchasing, inventory management, and logistics, all take on added significance. Further, increased operations in international markets bring additional issues such as variations in government policies, quality of infrastructure and nature of supply base, etc., to the forefront.

To compete more effectively in a global marketplace, it is important that firms understand these issues and align their purchasing, management of inventories, and distribution systems to the diverse environments in which they operate. Proper management of these systems can help strategically transform firms into world-class competitors.

While much has been written on international purchasing, inventory management and logistics, published research in these areas is sporadic. No systematic attempt has been made to lay the foundation for a comprehensive awareness and understanding of research in these areas..

Wedad Elmaghraby Pinar Keskinocak School of Industrial and Systems Engineering Georgia Institute of Technology did their research on Dynamic Pricing in the Presence of Inventory Considerations & use of decision support system in management of inventory in various organizations like airlines, hotels and electric utilities. They are using various information technologies for forecasting the demand.

Three factors contributed to this phenomenon: the increased availability of demand data, the ease of changing prices due to new technologies, and the availability of decision-support tools for analyzing demand data and for dynamic pricing. Determining the right price to charge a customer for a product is a complex task, requiring that a company know not only its own operating costs and availability of supply but also how much the current customer values the product and what future demand will be.

Therefore, in order to charge a customer the right price, a company must have a wealth of information about its customer base and be able to set and adjust its prices at minimal cost. Until very recently, neither element was present; companies had limited ability to track information about their customers. Tastes, and faced high costs in changing prices.

Technology allows retailers to collect information not only about the sales, but also about demographic data and customer preferences. Due to the ease of making price changes on the Internet, dynamic pricing strategies, especially in the form of price markdowns, are now frequently used in B2C as well as B2B commerce by numerous companies, including Fair Market, Comp USA, Lands, End, J.C. Penney, MSN Auction and Grainger.

Brent D. Williams, Travis Tokar did their study on future direction on inventory & supply chain management. They write logistics can generally be identified by its focus on optimizing business activities related to the efficient flow and storage of inventory, goods, and services throughout the supply chain. They provide two major findings focused on inventory management. First, logistics researchers have focused considerable attention on integrating traditional logistics decisions, such as transportation and warehousing, with inventory management decisions, using traditional inventory control models. Second, logistics researchers have more recently focused on examining inventory management through collaborative models[footnoteRef:7]. [7: ]

Prerna Jhunjhunwala did the analyses of overall performance of Vishal retail limited on (March 26, 2008). Prerna jhunjhunwala analyses the reason for growth of Vishal Mega Mart in the retail industry.

Vishal Retail Ltd, incorporated in 2001 by Mr. Ram Chandra Agarwal, is in the business of value retailing with focus on Tier 2 and Tier 3 cities. At present, the company operates 92 stores under the name Vishal Mega mart with a retail space of 2 mn sq.ft. To ensure strong logistics support, the company established 29 warehouses in 8 cities with total space of1.05 mn sq.ft. and a fleet of trucks for transportation.

As on 2008, Vishal Retail operates 29 warehouses in 8 cities with a space of 1.05 million sq ft. The company has 8 distribution centers in different zones, where all the products are stored. As a result, it maintains less space for storage in the retail stores enabling better utilization of space. Majority of the warehouses are located in northern region due to its concentration (approximately 62% of sales in FY07)[footnoteRef:8] in the concerned zone. Since the presence in the south is very small, the requirement from the southern India is catered by the distribution centre in west. [8: ]

The company also maintains a fleet of more than 50 trucks for transportation of products to distribution centers and from distribution centers to retail stores. It also uses the services of low cost logistics service providers to deliver products on time and optimizes transportation cost. We believe that the strong logistics and distribution network will enable the company to keep transportation cost in control and improve inventory management.

The inventory requirement of the company is increasing year-on-year as it is in growth phase. Since the company is expanding at a very rapid pace, it has to keep inventory not only for old stores, but also for new stores and for stores which have not yet started. This results in high inventory requirement which takes time to convert into sales. Also the company is expanding in all the zones of the country, whereas its warehouses are located at few selected cities. This results in high inventory requirement at the distribution centers and the transit period of goods is nearly 3-4 days. With the expansion going on, we expect the inventory turnover to decline for at least 3 years. As the pace of expansion slows down after 3 years, the inventory turnover may increase resulting in faster conversion of inventory into sales[footnoteRef:9]. [9: ]

Vishal Retail operates two manufacturing facilities with a capacity of 1.5 mn pieces each. The Gurgaon manufacturing facility began operations in 2004 and currently operates at 80% utilization. The Dehradun facility, currently operating at 40% utilization, commenced operations in September 2007. The company also makes FMCG products, like namkins, farsans, ketch-ups, etc., through a bakery in Gurgaon. The in-house manufactured products enable improvement in operating margin. In FY06, the products manufactured by company contributed 9.7% to sales. This contribution is decreasing every year due to inclusion of other categories in the product mix.

Vishal retail limited main focus is on the value retailing segment, targeting the middle and lower middle income groups, which constitute majority of the population in India. At present 80 out of the 150 stores of the company are located in Tier II and Tier III cities. This strategy enables it to capture market share in these locations where majority of its target customers are located and there is less of competition from the other branded retailers who normally do not have a presence in many of these locations[footnoteRef:10]. [10: ]

Supply chain management of Vishal mega mart involves planning, merchandizing sourcing, standardization, vendor management, production, logistics, quality control, pilferage control replacement and replenishment. Our supply chain management provides us flexibility to adapt to changing patterns in consumer behavior and ability to add value at various steps/levels. In particular, our supply chain management gains strength from our ability to undertake in-house manufacture, design and development of apparels.

The companys operating margin is higher than to peers due to owned manufacturing capacity of apparel, higher proportion of apparel in the sales mix (60%), and sales of private labels only in apparels, high share of private labels in the sales mix, efficient supply chain and distribution system and low rentals.

Vishal Retail operates 29 warehouses in 8 cities with a space of 1.05 million sq ft. The company has 8 distribution centers in different zones, where all the products are stored. As a result, it maintains less space for storage in the retail stores enabling better utilization of space. Majority of the warehouses are located in northern region due to its concentration in the concerned zone. Since the presence in the south is very small, the requirement from the southern India is catered by the distribution centre in west.

The company also maintains a fleet of more than 50 trucks for transportation of products to distribution centers and from distribution centers to retail stores. It also uses the services of low cost logistics service providers to deliver products on time and optimizes transportation cost. We believe that the strong logistics and distribution network will enable the company to keep transportation cost in control and improve inventory management.

Vishal mega mart is able to reduce operational cost; this is due to the company strategy of opening stores in Tier-2 and Tier-3 cities, where the rental cost is low. In tier-1 cities, the company opens stores only in the outskirts of the city, where the rental cost is much lower than the prime area. Moreover, the company prefers opening stores in readymade buildings rather than malls to reduce rental cost. These entire initiatives enable the company withstand intense competition. We do not see much increase in the rental cost going forward due to this strategy.

Rati Pandit did our study on performance of various stores of Vishal Mega Mart in June 12, 2006 on the issue of inventory management. She also studies about the supply chain management of Vishal mega mart related to efficiency of distribution of stock to various stores in India. In order to reduce costs and take advantage of economies of scale VRL has embarked on backward integration of its products by setting up one apparel manufacturing plant in Gurgaon. Besides this it has set up 7 regional distribution centers for ensuring efficiency of supply chain. The company has developed a cost and time efficient distribution and logistics network and has a fleet of 50 trucks for the fulfillment of the same.[footnoteRef:11] [11: ]

Chao Li (2006) did our study on use of information technology in the management of inventory in the organization. They said with rapid growth of human-computer interaction, more and more useful software are replacing human efforts. The system on which they propose this report, integrates the idea to automated , instead of manually, manage inventory of a restaurants liquor, meanwhile it can generate sales report, inventory report, etc, which all require human efforts previously. As a result, this new system can reduce possible human errors and provide accurate information of inventory at any point.

The Automated Inventory Management System is implemented with the latest Java technology utilizing extended swing library which makes layout easy to use and eliminate much of the tedious code to generate swing form.

They are included in their report that, there should be a lot more features that can add to the Automated Inventory System. One of them is networking which allow several other computers to access database simultaneously without interrupting each other. Therefore the database should include the features of ACID which stands for Atomicity, Consistency, Isolated and Durability. Furthermore, the sales report can be exported to excel file which can be saved independently. When users of AIM generate sales report, they have choices of either printing out directly or export to generate extra excel file that can be viewed using MS Excel. Nevertheless, AIM is just the beginning of inventory management system[footnoteRef:12]. [12: Cay S. Horstmann and Gary Cornell, Core Java Volume II-Advanced Features, 2001]

Yen-Chun Wu did their study on topic of Internal Lean Manufacturing Practices and JIT Logistics. They study about how JIT is helpful in management of inventory in the organization & what are the benefit are associated with it. The study was done on automobile industry. Yen-Chun Wu says Logistics or supply chain management refers to the art of managing the flow of materials and products from source to user. JIT is a comprehensive philosophy designed to increase quality and eliminate waste through the whole process. According to Levy, JIT delivery and low inventory are the heart of lean production. First, lean manufacturing requires rapid delivery from suppliers in order to avoid very high inventories. Second, a minimized inventory and substantially reducing sourcing, production, and delivery cycles will require manufactures to create uninterrupted materials of high quality parts from sourcing to manufacturers to market.

In order to reduce costs and provide better service to the shippers, suppliers are relying extensively on information technology such as electronic data interchange. Our study provides evidence that Electronic Data Interchange (EDI) plays an important role in supply chain management. Supply chain management emphasizes vendor responsiveness, flexibility, and dependability as a means to improve customer service and logistics productivity. Timely and accurate information exchange between supply chain partners is essential for responsiveness, flexibility, and dependability. The results indicate that for lean suppliers, the need to track the status and location of shipment is increasing as more companies implement JIT or other inventory-reduction programs. Overall, our results show that lean suppliers use more EDI than non-lean suppliers.

The study also provides evidence that lean suppliers are able to reduce logistics costs over time as compared to non-supplier firms. Much of the existing literature in purchasing, materials, production and inventory management pays attention to the benefits to the supplier firm in terms of reductions in manufacturing costs. Our results suggest that the benefits of long-term relationships go beyond just manufacturing efficiencies[footnoteRef:13]. [13: ]

Matt, Johnson and Davis defined the Vendor Management Inventory policies as special quick response case based on push principles. In this model the supplier manages inventory for the retailer, it takes responsibility for setting target inventory levels and making restocking decisions. By receiving electronic messages with sales information or warehouse shipments, the supplier assumes responsibility for replenishment retail inventory in the required quantities.

This strategy tries to reduce the effect made by demand variability changing the order frequency for getting a smooth inventory flow reducing the investment on holding it and improving the resource utilization such as transport an production resources.

But the supplier and its customers needs to speak the same language for getting the goals written above. That means all of the participants of VMI relation must have a common information platform or at least some kind of software and hardware combination that can translate the messages between them. Some of those solutions are quite expensive and in some cases confidential information must be shared[footnoteRef:14]. [14: ]

RESEARCH METHODOLOGY

Introduction

Research methodology is a way to systematically solve the research problem. It may understand as a science of studying how research is down scientifically[footnoteRef:15]. [15: ]

In order to provide conclusion with regard to the topic of the study inventory management technique used in retail industry-A case study of Vishal Mega Mart. The research methodology consists of research design, area of study, sampling technique & method of data collection. It is necessary to adopt a suitable mode for the study. The personal interview of Store manager (Vishal Mega Mart) is conducted for analyses the given problem.

Research Design: - A research design is the arrangement of conditions for collection & analyses of data in a manner that aims to combine relevance to the research purpose with economy in procedure.

To fulfill the objective of project, descriptive research design has been adopted. A descriptive research design concern about describing the characteristics of a particular individual or of a group, or describing the characteristics of a problem. The major purpose of descriptive research is description of the state of affairs at it exists at present.

Area of study: - It is define as any geographical location or any particular place in which research work is performed by research. My Area of study is confined to only Vishal Mega mart, Bareilly for completing my research project report.

Sampling design: - A sample design is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researcher would adopt in selecting items for the sample. In my research project report I use Convenience sampling technique for the collection of data. It is very helpful in collection of data according to our requirement. It also helpful in collection of appropriate data in short time period.

Research tool: - For collecting the data I take Personal interview of store manager of Vishal Mega Mart.

3.6:Collection of Data: - There are two sources for collection of data these are (A) Primary source, (B) Secondary source.

Secondary source: - secondary data means data that are already available & analyses by someone else. In my research study the information obtains from secondary source. The secondary data collected from the concerned authority (Store manager Vishal Mega mart) by personal interviewing.

Questionnaire Characteristics:

Q.1)Does your organization follow any inventory management technique?

With the help of this question I am able to know, whether Vishal mega mart is using any kind of inventory management technique or not.

Q.2) What type of inventory management technique do you follow?

This question provides me the facility to know, what type of inventory management technique they are using.

Q.3) On what basis the method is selected for managing inventory?

It provide the facility to know the selection method used by managing the inventory

Q.4)Which type of ordering system is followed?

It is helpful in knowing what type of ordering system they are following

Q.5) Do you use any technology or software for managing inventory? If yes, please mention?

This question provides me the facility to know whether they are using any IT software for managing the inventory.

Q.6) Have you analyzed the impact of inventory management on cost reduction?

This question provides me the facility to know whether Vishal mega mart receiving any benefit from inventory management or not.

LIMITATIONS

Some of the limitations of research project report are listed below:

1. The researches require dept study, but due to time constraint dept study of given problem is not possible.

2. All the information provided by the store manager and all the analyses are based on this information.

3. The study is confined to only vishal mega mart , Bareilly

Data Analysis

Q.1)Does your organization follows any scientific inventory management technique?

a) Yes

b) No

Response: - The store manager said that yes we are follow scientific method inventory management

Interpretation:

They follow scientific techniques for inventory management in Vishal Mega Mart, Bareilly. Due to this they are able to manage our inventory effectively & efficiently.

Q.2)What inventory management methods do you follow?

a) EOQ (Economic order quantity)

b) Selective inventory control techniques

1.

Page 43

2. ABC

3. FSN

4. VED

5. Other

Response We are using selective inventory management technique with in this we are using ABC & FSN.

Interpretation:

In Vishal Mega mart for optimizing the inventory cost they are follow selective inventory control technique ABC Analysis for keeping goods according to their value and consumption rate.

ABC classification:

ABC stands for always better control. The items on hand are classified into A,B,C and types on the basis of the value in terms of capital or annual Rupees usage (i.e., Rupees value per unit multiplied by annual usage rate), and then allocates control efforts accordingly. Thus, the items with high value and low volume are kept in A-type, items with low value and high volume are kept in C-type, and the items with moderate value and moderate volumes belong to the B-type gets the moderate attention. Typically, three classes of items are called: A (very important), B (moderately important), and C (least important).

The actual number of categories varies from organization to organization, depending on the extent to which a firm wants to differentiate the control efforts. With three classes of items, A items generally account for about 15 to 20 percent of the number of items in inventory but about 60 to 70 percent of the Rupees usage. At the other end of the scale, C items might account for about 60 percent of the number of items but only about 10 percent of the Rupees usage of an inventory.

A type items should receive close attention through frequent reviews of amounts on hand and control over withdrawals to make sure that customer service levels are attained. The C type items should receive lesser control (e.g. two-bin systems, bulk orders), and the B type items should have controls that lie between the two extremes.

FSN Classification:

In this method, the items are classified according to the rate of consumption. Thus, the materials can be fast (F), show (S) and non-moving types (N). F-type materials get the maximum attention and the N- type the minimum for their control and procurement. This concept is also applying in Vishal mega mart retail store. Let the different items in Vishal mega mart are: mobile phones, cosmetics, footwears, jewellery, suitcase, ladies wrist watch, toys, household appliances, shaving blades, Rice, pulse, salt, sugar, tea wound plasters, and dry-fruits.

According to FSN, they can be classified as F = Rice, pulse, salt, sugar, tea and some other daily needs items are consumed almost daily at relatively faster rate and they need more attention to avoid stock-out situation in the store specially if some unexpected demands of customers. S = suitcase, ladies wrist watch, toys, household appliances, Mobile phones , are consumed at a moderate speed and need moderate attention.

N = jewellery, and some costlier items are consumed at a very negligible rate and need attention. They can be bought and can be consumed leisurely when need arises.

The same concept can be extended to industrial or war situation. For example, the bullets are fast moving items but a nuclear bomb is almost a non-moving item. In fact it may never be used but it consumes lot of revenue. Such items are sometimes called insurance items as they ensure a kind of deterred and may prevent a war between two nations just by their presence.

Q.3) On what basis the method is selected for managing inventory?

a)Universal

b)Product category wise

Response: - for managing the inventory in organization we are using product category wise.

Intrepretation:

According to the product categories they are using ABC technique for various category of product in Vishal mega mart like home furnishing items, sports &fitness equipments, footwear, mobile phones, travel accessories, stationary, garments etc.

Q.4)Which type of ordering system is followed?

a)Periodic ordering system

b)Fixed quantity ordering system.

Response : -The store manager of Vishal Mega Mart says we implement Periodic ordering system for placing the inventory order.

Interpretation:

In Vishal Mega mart Periodic Ordering system is used in which ordering time is fixed but order quantity are not fixed. As in Vishal Mega Mart they sent their orders every week as per the requirements.

Periodic Ordering System:

The ordering system used is P system also known as Periodic Review system or fixed Interval system. In this system the size of order quantity may vary with fluctuation in demand but the ordering interval is fixed.

It is based on periodic reordering of all items. With every cycle the stock of each item is brought up to its level, which is dependent on the cycle, the replenishment period, and the consumption rate. When the replenishment period and demand rate do not change, the reorder quantity obviously increases with the cycle time, so that short cycles are required if rapid turnover of stock is desirable

Advantages over Two Bin System

All orders for replenishment are issued at the same time.

Ordering mechanism is regular and not subject to sporadic arrivals of warning signals from the store.

Disadvantages:

Usually more stock is held when this system is adopted than with the 2-bin system. Following variations of ordering cycle system are possible.

(i) All items one cycle

All the items are replenished in every cycle. This is useful when the number of items is not too large, and differences in demand are not very significant.

However, in this system the average stock level tends to increase with the number of items.

(ii) Multi cycles

The items are divided into groups and each group has its own ordering cycle, independent of the other groups. The groups are formed either by selecting goods that to be ordered from the same vendor or by taking items with similar demand characteristics.

The system is adopted when the stores have to deal with a large number of items.

In case of some daily needs items mostly those which are edible and perishable like vegetable oils, spices, milk, butter, etc. they make local purchases from nearby markets like shyamgang, kutubkhana mandi, etc.

Q.5)Do you use any technology or software for managing inventory? If yes, please mention.

A. DSS

B. SAP

C. Other

Response : - The store manager of Vishal Mega Mart says Yes we are using information technology in the organization, the SAP Software is used by organization.

Interpretation:

The chain of superstores, Vishal Mega Mart, has selected SAP to improve its business processes and create a strong and adaptive environment for business growth and profitability. This state-of-the-art system will enhance critical processes including global sourcing, distribution, logistics, product innovation, inventory visibility, financial transparency, compliance and point-of-sales data management.

Q.6)Have you analyzed the impact of inventory management on cost reduction?

A. Yes

B. No

Response : - The store manager of Vishal mega mart said that yes we analyzed our inventory management techniques, and these inventory management technique provide us reduction in overall cost of inventory.

Interpretation:

The store manager of Vishal mega mart said that We analyze the effect of inventory management on cost reduction & that is beneficial for the organization.

Q.7)How much percentage of inventory cost is reduced by following these techniques?

A. 5% -10%

B. 10%-15%

C. 15%-20%

D. 20%-25%

Response: - C.The store manager of Vishal Mega Mart says with the help implementing inventory management technique we are able to reduce overall inventory cost by 15%-20%.

Interpretation:

The store manager said that by using various inventory control techniques we able to reduce total inventory cost by 15%-20%.

Q.8) What problem you are facing in management of inventory?

Response: - The store manager of Vishal Mega Mart says we are facing various problems in management of inventory in the organization these are Shoplifting, Damage, expiry & damage in transit etc

Interpretation:

The store manager of Vishal mega mart said that we are facing many of problems while managing the appropriate inventory position in the organization like. Due to Shoplifting by the workers of the organization they are facing the problem of shortage of inventory in the organization & not able to make appropriate level of inventory in the organization. Damage is also creating the problem in management of appropriate inventory level in the organization.

CONCLUSION

In the conclusion it can be said that the Vishal Mega mart Bareilly is using various qualitative as well as quantitative inventory management techniques ABC & FSN etc for different product categories and they also uses SAP solution which helps in effective Management of Inventory. On the basis of findings and analysis the overall Conclusion can be drawn as the Vishal Mega mart Bareilly is able to reduce the Inventory cost as well as efficiently managing their replenishment system.

As I study them & they are managing their inventory very effectively, but then also they are facing many of problems in the management of inventory in the organization, some of them are controllable and some are uncontrollable variable.

SUGGESTIONS

Even though the inventory cost is reduced by the different qualitative and quantitative techniques used but they should also go in much detail of even small product categories.

In case of periodic Ordering system it may leads to the stock out situation due to uneven demand, so they should follow the perpetual system which keeps track of removals from inventory on a continuous basis. When the amount on hand reaches a predefined minimum quantity, a fixed quantity is then ordered. This system provides continuous monitoring of Inventory withdrawals and the setting of optimal order quantity.

Organization should take proper watch over employee, so the shoplifting should be minimize.

In case expiry of goods Organization should use sales promotional scheme when the stock reach nearby expiry date. Due to this utilization of inventory should possible.

BIBLOGRAPHY

For colleting the information regarding my project repot on the topic Inventory management technique used in retail industry A Case study of Vishal Mega Mart I am use different books, Journals, websites. The references given blow:-

Books

1. V.K.Kapoor, Operations research Techniques for management, Edition-7(2007).

2. C.R.Kothori, research methodology (methods & techniques), edition(2009).

Journal

1. Crum, M. R., G. Premkumar, K. Ramamurthy (1996). An Assessment of Motor Carrier Adoption, Use, and Satisfaction with EDI. Transportation Journal Summer:

2. Brent D. Williams, Travis Tokar the International Journal of Logistics Management (2010) Opportunities for behavioral research in logistics and supply chain management, Volume 21 Issue 1.

Website

1. A survey report of business.mapsofindia.com (last accessed 23.3.2010)

2. www.indiaretailshow.com/Industry (last accessed 23.4.2010

3. snipsly.com/2010/03/11/report-on-Indian-retail-industry

4. www.slideshare.net(Retailing in India, the Emerging Revolution)

ANNEXURE

Q.1)Does your organization follow any inventory management technique?

A.

Page 59

B. Yes

C. No

Q.2) What type of inventory management technique do you follow?

A. EOQ (Economic order quantity)

B. Selective inventory control techniques

a)

b) ABC

c) FSN

d) VED

e) Others

Q.3) On what basis the method is selected for managing inventory?

A.

B. Universal

C. Product

D. Other

Q.4)Which type of ordering system is followed?

A. Periodic ordering system

B. Fixed quantity ordering system.

Q.5) Do you use any technology or software for managing inventory? If yes, please mention-

A.

B. DSS

C. SAP

D. Others

Q.6) Have you analyzed the impact of inventory management on cost reduction?

A.

B. Yes

C. No

Q.7)How much percentage of inventory cost is reduced by following these techniques?

A. 5%-10%B.10%-15%

D. 15%-20%D.20%-25%

Q.8) What difficulty you are facing in management of inventory?

SalesABCFSN0.80.2SalesProduct categorywiseUniversal0.96000000000000034.0000000000000022E-2SalesYESNO0.919.0000000000000024E-2