Case study of stock management system

In effect this means getting the correct product to the customer in the right place at the right time. When talking about the customer it is important to distinguish between the customer in the street i.e. general public, and the customer, the trader, who is buying the goods to sell on at any level. The term logistics applies to all customers but we are applying the term to the trader for the benefit of this study.

In recent years, focus upon logistics has become of paramount importance at all levels of trade and has become a major emphasis in large-scale retail, especially those with a high and fast turnover i.e. supermarkets.

This is reflected in recent reports:

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• "A prime objective of any business should be constantly to seek ways of reducing the total costs of ownership while lowering their own costs"
• Cost of ownership is the costs above those charged, for example, inventory carrying, warehousing and handling, ordering and quality inspection. To minimalise these costs, large-scale retailers have spent great deals of money upon centralized stock distribution and computerized inventory management systems, to try and gain a competitive market advantage. Centralized stock distribution involves using one as opposed to many warehouses to distribute stock for more efficient transportation. Inventory management systems automate many of the tasks involved in the control of stock and reordering.
• Without effective distribution and effective inventory management systems, other activities and functions carried out within the company may at best, fail to be optimized and, at worst, be rendered a waist of time if time. Therefore no money and (or) time saved in the long term.
• Leaders of these management systems include the likes of J. Sinsbury, Tesco, Asda, Iceland and Safeway, the case study I shall discuss in this piece of coursework.
• Safeway has a sales base ordering inventory management system, known as Stock Management III (SMIII), introduced in 1992/3. This was fully implemented to centrally distribute many of their product ranges, including; grocery, beers, wines and spirits and non-food department items.
• SMIII is aim was to improve the accuracy of stock ordered in the stores, reducing the number of out of stock produce and therefor creating sales maximization. Moreover reducing wastage, reducing backstocks and creating a consistency in merchandising practices.
• SMIII uses data collected in each store to work out the sales forecast for each product using the store inventory. It then converts these quantities for ordering. These processes rely on data input for accuracy. There are six key concepts involved in this process.

Firstly, the sales forecast. Line by line information on sales is built up at the checkout. A forecast of how much more stock is likely to be required is then calculated for future ordering periods.

The demand is calculated using specific parameters for each line. The system must take into account: how much stock the store already has; the space allocated for each product; the code life of products (when they become out-of-date); outstanding deliveries; sales opportunities (promotions etc.) and current business policies. The system will then calculate how much stock is needed for sales and the amount needed to fill the shelves.

Case Rounding rules are needed to convert the two figures, that of sales and to fill the shelf, for ordering. This is quite simple. The system will always order enough stock to fulfil the sales. It then decides according to the amount of shelf space, whether to round up or down to the nearest case to fill the shelves.

It must be noted that the accuracy of the orders generated by the system is only as good as the data input. Data is obtained from a number of sources, therefor it relies upon each department or division getting its part of the process correct. The departments are responsible for entering product and item movement information into SMIII and processing stock as follows:

• Trading: ranging, space allocation, units per outer (UPO), data integrity.
• Supply chain: supply to depot, optimum lead times, data integrity.
• Distribution: delivery of right stock to store at right time.
• Store: replenishing shelves, scanning, accurate bookstocks.

If any one of these items is omitted then the process will fail. These above activities affect the inventory and range, the two key aspects of SMIII.

The system relies on accurate inventory data. Most item movement is updated automatically; deliveries through the companies central distribution system and sales captured by scanning at the checkouts. The store though is required to inform SMIII of any stock that enters or leaves the store through other channels. For example: spoilage; inter-store transfers; inter-departmental transfers (e.g. purchases for the staff restaurant); cross-picks (stock delivered but not ordered and vice versa); quality control (damaged stock that is not offered for sale).

Moreover stores take a bookstock check. This is where a check is undertaken for any product out of stock, or where stock levels are exceptionally high or low. If the bookstock is inaccurate, the system is informed, improving the accuracy of the next order.

The range refers to the actual range of products the store holds. For instance, a smaller in-town supermarket will not supply the array of products that an out-of-town hypermarket will stock. Stocking plans are determined by the trading division and are transmitted to the store where they are accepted into the store range. Stores are required to carry the full range of products within their plan size. This is an important factor because it shows that stores are not allowed to delete products from the range. They are however allowed to change the space allocated to a product.

SMIII calculates the optimum quantity of stock required to cover expected sales, safety stock levels (in cases where sales outstrip forecast) and stock levels required to maintain shelf presentation standards. In the case of groceries and long life products if accurate 'fill and face¡ information is not correctly input into the system by the store, shelf presentation may be affected and, moreover, out of stocks or high back-stocks may occur.

Through these factors the, sales forecast is achieved. Inaccurate sales forecasts will result in incorrect orders being generated. This could result in out of stocks, excessive back-stocks and/or unnecessary wastage. The above factors must, in tern be undertaken accurately. To achieve this the store must enforce a number of disciplines throughout, from stockroom level i.e. tidy, with stock in correct place to maximize stock level efficiency. Through to daily checks for out-of-date goods, and ensuring shelf space is allotted correctly and displays are correct.

A mid-morning inspection of a Safeway supermarket has been undertaken. There were a number of factors that can be seen as unsatisfactory from the stores point of view. I shall undertake to identify theses and solve them with minimum disruption to the store. There were a number of problems with the produce department.

Firstly presentation was poor in a number of the commodity groups such as root vegetables and loose apples. If the display does not look good or is not up to a reasonable standard, this can affect the customer¡s discussion to buy, this could affect forecasting levels especially if it occurred on more than one occasion. If the produce looks bad on a number of occasions it could affect the customers decision to shop at the store in the long term.

Moreover, If the displays are not full this may jeopardize the SMIII¡s calculation of quantities reordered as it runs on the assumption that the shelves are always optimally filled. Therefore sales cannot be maximized as the space allocation is not being followed. Finally it can be seen that if the display is bad this could mean that some of the produce is being caused damage unnecessarily. Creating wastage and again potentially affecting the customers decision to buy.

This needs to be sorted out quickly and efficiently, although not at a busy time, as from experience it can be off-putting trying to shop when people are filling the shelves. Moreover it must be noted that blame should not necessarily be rested upon anyone due to it being a mid-morning inspection on a Friday; a popular day for the weekly shop, the morning probably being the busiest time especially just after the school run. It is quite possible and probable that the poor display is due to the morning rush of customers.

There was only one item out of stock, cauliflower due to a delivery shortage at the depot. Obviously nothing can be done about this at store level. But this information needs to be input into the SMIII to keep the store inventory updated so that this will be taken into account when forecasting. This reflects well on the produce department as the whole range other than this is shown giving people the most possible choice. There are wider implications for an out of stock item in a situation where there are two competing supermarkets. If a different item on someone¡s shopping list is out of stock each week, it may be a factor in persuading them to shop elsewhere.

The produce delivery was being worked and the shelves were in the process of being stocked. Although this may cause shoppers some inconvenience it shows that the department is keeping the stock rolling, maximizing space used in line with the SMIII 'thinking¡. Deliveries though should ideally arive and be sorted before opening to minimise inconvenience for both the shopper and staff, as it is easier to attend to the task in an empty shop.

Product quality was generally good, although a number of grapefruit, which were below standard, were now being removed. These grapefruit must then be counted and entered into the system to update the inventory for forecasting. It can be seen as good that the bad fruit were being removed, but bad stock must always be removed as soon as possible as customers will notice and may be put off buying. In a wider aspect though, perhaps stockholding levels should be looked at as they may have been in the store too long due to excess stock. This could also be damage through bad storage or transportation, which would need looking into if it recurred continuously.

Overall it can be seen that bad stock, shortages and displays should be checked regularly and sorted out as soon as possible. People look at these factors when making buying decisions. This is concerned with relationship marketing where there should be a twin focus on total quality and service as a source of customer satisfaction. Customer satisfaction ensures better customer retention and therefor greater profitability.

The customer can be put off by too many staff filling shelves as it can distract from the pleasure of being able to browse whilst shopping. Therefor a balance must be found.

The forecasting potential was good in the produce section as long as out of stock and wastage was entered into the SMIII system. Otherwise stockholding levels could be affected especially with the non-full lines. Moreover the presentation must be kept to a high standard as this may affect peoples opinion of the shop and therefore customer loyalty. The grocery department had three main problem areas.

The promotional point of sale was missing from an on-shelf promotion on the tea/coffee section. This is a major problem as it would have a great affect on the forecasting. The store would expect to sell more of this product through the promotion, and therefor have ordered in more to compensate. Sales would not reflect the expected response to the promotion, as people would be unaware of it. This needs to be rectified as soon as possible and the system notified as the anticipated extra demand would not be apparent. This would affect forecasting and therefore future orders; potentially causing a shortage once the promotion was displayed.

Loose stock was stacked behind other adjacent products on the soup section and appeared to have been there for several weeks. This reflects bad organization. Stock may not be noticed by the customer and space allocation disrupted. Space for the stock is allocated so that the system can accurately forecast the quantity of goods required to both fill the shelf and for sales. Using the space incorrectly can affect stockholding levels due to the amount predicted to be on the shelves and in storage.

Although actual recording of sales will not be affected, it must be noted that sales could be, if the product namely soup couldn¡t be found. This needs to be sorted out immediately, and could possibly reflect a lack of motivation in store, as the shelves were not stacked correctly. It also reflects badly on myself as acting manger, as this problem appeared to have been so for weeks. Store inspections must be held regularly to ensure this type of problem does not occur.

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