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PTAK PRIZE SUPPLY CHAIN CASE COMPETITION

TEAM: CORP-0103

A Case Study on Inventory Management


The SCM Driver: Inventory TEAM: CORP-0103

Team Member -1 Name : Abdul Awal Md. Saiful Islam Signature : Team Member - 3 Name : Md. Faysal Mahmud Khan Signature :

Team Member - 2 Name : Ahmad Walid Bin-Nur Signature : Team Member - 4 Name : Pallab Sutradhar Signature :

DATE

OF

SUBMISSION: APRIL 20, 2013

Introducing the Organization: Avery Dennison Bangladesh Limited is a part of Avery Dennison Corporation which is well reputed Fortune 500 listed a multinational corporation. The company has started the business from 2003. At a glance the company profile is given below. Snapshot of the Company Name Address Category Product Type Sales Volume Potential Customers : Avery Dennison Bangladesh Limited : Plot#167-169, Dhaka EPZ-Ext. Area, Savar, Dhaka : Printing & Packaging : Garments Accessories (Market Pull Product) : US $ 53.8 million (in 2012) : Walmart The Gap VF Uniqlo JC-Penney Marks & Spencer H&M Next G-Star PUMA

Inventory Management-A Case Study: The product of Avery Dennison Bangladesh is accessories of readymade garments e.g; Size label, Main label, Hang tag, RFID (Radio frequency identification) tag, price sticker etc. A case study on this company shows that this company losses profit margin significantly every year due to lack of proper inventory management due to both over stock and lower stock than the required. For example in 2012 the company loosed around US $ 7.6 million due to shortage of raw material i.e; lower stock. Moreover it also loosed US $ 22.5 million due to holding the inventory which were actually unused. Brief discussion with relevant data can prove that how inventory management impacts on a companys profit margin. Raw Material Used to Produce Different Types of Product Sl. Product Line Product Principle Material Fabric Roll Raw Types of Raw Material 320 Others Consumable Items i) Ink ii) Cyral Plate i) Ink ii) Cyral Plate Foil Ink 230 16 12 1 i) ii) iii) i) ii) Ink Negative P Metal Plate Ink Mesh Paper

2 3 4

Printed Fabric Label (PFL) Flexo Thermal Offset/Litho

1) Main Label 2) Care Label 3) Size Label Different types of Sticker 1) 2) 1) 2) Tag/Sticker with Barcode RFID Tag Hang Tag Price Ticket

Paper Roll Paper Roll 1) 2) 3) 1) Paper/Sheet String Eyelet Polyester Sheet 2) Hato Paper Yarn

38 18 1) 2) 3) 1)

Heat Transfer Label (HTL) Woven

Different Logo to be attached to garment by applying certain temperature 1) Care Label 2) Main Label 3) Size Label

2) 1 170

Floppy/Disk

Stock Levels of Raw Materials: Both the stock level over and lower may impacts on profit margin. Here the scenario of over stock and lower stock of principle raw materials are shown with respective analytical data. A. Over Stock: Overstock of raw materials gives us idea about the non-moving/slow moving materials which are kept in warehouse for long term that holds significant amount of money. From the very beginning the company is carrying raw material higher than the required/not required by purchasing them without proper forecasting which affects the company profit by the following reasons. Acquiring holding cost Higher/unnecessary space utilization Affects financially the profit margin

Purchasing costs of non-moving material (end of 2012) : US $ 8.2 million Purchasing costs of slow-moving material stock (end of 2012) : US $ 14.3 million Total inventory cost at the end of 2012 : US $ 22.5 million B. Lower Stock: Due to lack of proper forecasting the company also losing profit by lower stock of required raw material which affects the demand on time. It is also remarkable that the demand planning is partially responsible for this. It can be summarized as below: By cancelling the order from customer the company loosed around US $ 4.7 million in 2012. By transferring the order to other site of Avery Dennison the company loosed around US $ 2.9 million Due to late delivery of the goods company also loosed sole nomination of few customer

Specific data of losing the business by US $ 7.6 million in 2012 regarding shortage of material is summarized below: Total Order Intake QTY (in pcs) : 3,373,891,281 Total Sales QTY (in pcs) : 3,026,298,712 Total Cancelled/transferred QTY (in pcs) due to shortage of material : 347,592,569 Suspended order (in %) : 10.3% On time Material Availability (in %) : 89.7% Summary of the above case study: Amongst the six driver of supply chain management three are of logistical drivers. Inventory is one of them. From the above case its a great challenge to balance the stock levels efficiently to solve the inventory problem which is affecting overall business potentially. There are basically 2 challenges to overcome. i) ii) To reduce the non-moving/slow-moving material To avail the required material on time

To overcome the challenge following recommendations might be fruitful.

Recommendations: a. Reducing the non-moving/slow-moving material:

There are different width materials are available which are of same quality. Observing the nature of the raw material it was found that if the width can be reduced to required width high moving required material then huge demand can be met. To reduce the width an ultrasonic cutter is required. Many varieties of raw materials are used in manufacturing different products. To analyze the demand of those huge varieties of raw material inventories always create a complexity in forecasting. Company face trouble to maintain adequate inventory of each variety. So, If the company can reduce the number variety, then the forecasting error over raw material will be reduced. Company can adopt agile supply chain management with the combination of Lean concept which means try to react quickly over the customer demand and deliver product within the customers expected timeframe by maintaining less amount of inventory. If company adopts that agility then their movement of raw material will be faster and raw materials will be safe from obsolescence. b. Availing the raw material on time:

Below two cross functional drivers of supply chain management can play an effective role to avail the raw material on time: 1. Information: Its clear that to overcome the situation proper forecasting or projection is highly required. As we know that RMG sector of Bangladesh earns above 52% foreign currency of total export oriented business. If the garment manufacturing industries can get forecasts/projection from their customers then it is obviously possible to get projection from the customers of this company. The reason behind it is the customers are same for both pertinent. Networking: If the company wants to maintain smooth operation and to have adequate inventory just in time then they must have to build a proper information network of with their suppliers. With the help of this information shearing network the suppliers will be aware about the inventory level of different raw materials and they can be prepared themselves for the future upcoming demand of raw materials. So the company can avoid the risk of lower stock or inventory. Building Relationship with the Supplier: In present competitive business world every company must search for competitive advantage over their rival companies. To get this advantage, the company should build a good relationship with their suppliers. Company should take their suppliers as business partner and shear all the external and internal information with their. So the suppliers will act with more responsibility for the company and they will be more conscious about the need of the company. This way company can maintain availability of raw materials and avoid insufficiency of stock or inventory. Sourcing: To avail the raw material on time when it is required proper sourcing is the key solution. Before sourcing demand planning is also very important and finding a reliable supplier is also very important who has the capability to meet the need of raw material just in time.

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So we can summarize the above 2 drivers towards the solution of another driver: Proper Information +Networking+Relationship with Supplier +Sourcing= Proper inventory management

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