Inventory Assignment
Inventory Assignment
Inventory Assignment
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Coursework: Assignment 1
Submission Date: Sat, 14th April 2018 at 11.50 pm (via Moodle, Turnitin)
Weighting: 35% of final mark (Marked out of 100)
Type: Individual
Work Count: 2800 words +/-10%
Learning Outcomes:
Demonstrate an understanding of the process and methodology of inventory management within a warehouse and
transport environment.
Identify relevant performance measures, and evaluate the role of information systems and technology in the inventory
management in a warehouse and transport environment.
Bob’s bottling Company whose head office situated in the Hidd Industrial Area, Bahrain has multiple production
facilities around the GCC. Each facility has several production lines capable of manufacturing various lines of
products – canned juices, distilled water, carbonated beverages, etc. The products on a line can consume shared
characteristics of bottle size and package size.
Data Analysis:
The company’s production data for the year 2017 indicates the following. 16.69 % of total inventories (at the end of
2017) in warehouse did not have any movement that year, 3.95 % of total inventories reduced their quantity due to
the expiration of time, 5.13 % of total inventories having no sale for the year of 2016 increased their quantity due to
the production of new items. There were also items, whose inventory level was already high, however, the company
assembled new ones, therefore increasing inventory levels higher than the quantity of annual sales at the end of
2017. It was also detected that an inventory level was too high for items, whose quantity on monthly sales was less
than their safety stock. In addition, it was noticed that several items inventory level reached zero, which indicated an
out-of-stock situation had occurred.
Required from you:
A. Describe the types and categories of inventory typical to Bob’s Bottling Company and highlight the importance of
inventory management, and the reasons companies need to have inventory in the first place. (30 marks)
B. Explain which are the relevant factors impacting Bob’s bottling Company inventory levels. Your analysis should
cover all categories of inventory, as well as internal and external causes. (30 marks)
C. Discuss which strategies could be implemented to improve current Inventory Management practices in your
company including but not limited to information systems and the use of technology. (30 marks)
D. Format and Presentation. (10 marks)
Table of Contents
...........................................................................................1
Introduction:...............................................................................................................................................................8
Types of inventory: .....................................................................................................................................................8
Inventory position ...................................................................................................................................................8
Raw materials .....................................................................................................................................................8
WIP ..................................................................................................................................................................... 8
Finished-goods ....................................................................................................................................................9
In-transit stock ....................................................................................................................................................9
Source of demand ...................................................................................................................................................9
Function or use ..................................................................................................................................................... 10
Safety-stock ......................................................................................................................................................10
Speculative-stock .............................................................................................................................................. 10
Postponement: ................................................................................................................................................. 10
Cycle-stock: .......................................................................................................................................................10
Inventory management:............................................................................................................................................ 11
Reasons for inventories: ........................................................................................................................................ 11
Running operations: .......................................................................................................................................... 11
Meeting demand: .............................................................................................................................................. 11
Encountering seasonality: ................................................................................................................................. 11
Supporting production-activities: ......................................................................................................................12
Factors impacting inventory levels: ...........................................................................................................................12
Demand variability ................................................................................................................................................ 12
Forecasting ...........................................................................................................................................................12
Customer trends ................................................................................................................................................... 13
Lead-time and set-up time .................................................................................................................................... 13
Quality .................................................................................................................................................................. 14
Inventory management strategies: ...........................................................................................................................15
ABC analysis ..........................................................................................................................................................15
Advantages and disadvantages: .........................................................................................................................15
Implementation: ............................................................................................................................................... 16
Information-sharing: ............................................................................................................................................. 16
ERP: .................................................................................................................................................................. 16
Advantages and disadvantages: .........................................................................................................................17
MRP: ................................................................................................................................................................. 17
Advantages and disadvantages: .........................................................................................................................17
Implementation: ............................................................................................................................................... 17
JIT: ........................................................................................................................................................................ 18
Advantages and disadvantages: .........................................................................................................................18
Implementation: ............................................................................................................................................... 18
Conclusion: ...............................................................................................................................................................18
References ................................................................................................................................................................19
Table of figures:
Figure 1: Cardboard box ..............................................................................................................................................8
Figure 2: ABC classification (Plinta, 2012) .................................................................................................................. 15
Figure 3: Bob’s Inventory classification......................................................................................................................16
Introduction:
With reference to the case study provided, this report will include a description of inventory categories typical
to Bob’s Company, in particular to its fruit juice production line. Moreover, the report will contain an explanation of
the relevant factors impacting its inventory levels, in addition to a discussion of the strategies that can be implemented
According to the CILT (2014a, p. 4&13), since inventory exists as a symptom of the way businesses are run, the
inventory level held can be high or low accordingly. Generally, inventory is grouped into three categorical divisions.
Inventory position
The first categorization is based on inventory position in the supply chain process (CILT, 2014a). It includes:
Raw materials
uninterrupted production runs (AKINDIPE, 2014). For Bob’s Company, Commented [A4]: good
and tape water (Lemanowicz & Krukowski, 2009, p. 7; Bates, Morris, &
Crandall, 2001, p. 19). Other raw materials used for bottling and Figure 1: Cardboard box
packaging purposes are outsourced labels, caps, cardboard boxes and plastic bottles that share the size characteristic
WIP
Work-in-progress is the second group. These are inventory a company is currently working on or inventory
waiting between operations, which is referred to as decoupling inventory (CILT, 2014a). Bob’s Company WIP inventory
include juice preparation stage, since the concentrate mixed with water and other raw materials is stored in tanks as
WIP. Additionally, the filling and bottling stage, as bottled juice drinks are held as semi-finished assemblies prior to
labelling and packaging (Pagliarussi, Morabito, & Santos, 2015, p. 3). Commented [A6]: yes
Finished-goods
The third group is finished goods that have completed all the processes and a sufficient inventory of these
must be held to meet customer demand (CILT, 2014a). Accordingly, Bob’s Company holds packs of fruit juices, such as
packaged mango juice. These will be stored in cool dry condition before distribution (SMEDA, 2007, p. 29)
In-transit stock
The last group is in-transit inventory, which is inventory en-route between points in the SC. For Bob’s
Company, this can be shipped inventory from their manufacturing plant to a distribution center (CILT, 2014a).
However, determining the ownership of in-transit inventory is done based on incoterms. Therefore, placing minimum
responsibility on Bob’s Company is essential. Consequently, an EX-works transaction will be agreed on with customers,
where they are responsible for order picking-ups, arranging insurance and export clearance (ICC, 2010). Commented [A7]: All points covered and succinct
Source of demand
According to the CILT (2014a), the second inventory categorical division is based on the source of demand and
is grouped into dependent demand inventory, as the inventory demand is related to internal-decisions and
independent demand inventory, where the demand of products is dependent on the external customer. It could be
argued that all demand is reliant on the customer. However, sometimes a manufacturing outfit hold products at Commented [A8]: Ok… eg’s
Commented [A9]: ??
different rate than the customer demand rate. For instance, Bob’s bottling company may build up stocks of raw
materials or WIP to respond to orange juice demand at its peak during cold season (Davis, Gunderson, Brown, & House,
2008, p. 4). Correspondingly, independent demand inventory refers to the sellable-finished inventories that are
dependent on positive or negative customer demand. For example, the consumption of citrus fruit has declined
(Martin, 2017). Consequently, reduction in production is crucial to avoid over-stocking finished goods. Commented [A10]: good
Function or use
The third category is related to inventory function or use in the SC process (CILT, 2014a). These are:
Safety-stock
Safety stock is inventory that fills the gaps during unanticipated increases in demand or delays in supplies.
Accordingly, maintaining safety stock of juice concentrate is cheaper than importing them for just-in-time production
Speculative-stock
Markets generate speculation regarding price increases and supply fluctuations (CILT, 2014a). Therefore,
speculative stock is acquired to reach economies-of-scale or to generate seasonal stock (Chowdhury, 2015). For
instance, juice concentrate quality and price is highly dependent on fruits seasonality. Respectively, speculative
inventories of frozen juice concentrate are held to ensure producing juice at both high quality and low cost level (FAO,
Postponement
Postponement approach refers to delaying WIP configuration, until actual demand is recognized (CILT, 2014a).
With regards to Bob’s Company, in some cases, the bottled juice product may be conveyed to a palletizing machine,
where they are stacked unlabeled for completing future private label orders. Thus, more customization is achieved
Cycle-stock
According to the CILT (2014a), cycle-stock satisfies demand during order lead-times. Thus, Bob’s raw materials
such as labels are ordered in large amounts, because the delivery times are long, although it needs to be available in
large quantities, since it is impossible to estimate the amount of finished products to be produced (MIETTINEN, 2011,
p. 39). Consequently, labels left unused is the cycle stock of Bob’s Company until the next order.
Inventory management:
Holding inventory is connected with significant costs, termed as holding costs and include storage costs, and
costs attributed to obsolescence etc. These have a direct effect on companies’ return-on-investment. However, there Commented [A13]: ref
are also costs associated with stock-outs such as lost orders and backorder costs (CILT, 2014a). Consequently, proper
inventory management practices is important to keep inventories on optimal level, without stock-outs and excesses,
while reducing holding costs, reducing variations between demand and product availability and meeting customer
According to the CILT (2014a), inventory is defined as stock of any item held for many reasons including
Running operations
Raw materials inventory is kept as a safeguard for variation in supply fluctuations, since delays can occur as a
result of materials shortage in the supplier plants (SINGLETON, 2010). For instance, the supply of frozen grape fruit
concentrate outsourced from South-Africa is limited, due to delays in crops (ITC, 2016). Consequently, completing the Commented [A15]: 😊
production of finished grape fruit juice can be prevented, if insufficient frozen concentrate is in stock.
Meeting demand
According to Ogbo & Ukpere (2014, p. 6), inventory exists to providing the exact products required at the time
it is required. Consequently, Bob’s bottling Company must have the demanded products on hand when customers
want them. For example, if certain quantity of apple juice were demanded by a customer, but the number of packages
available in stock was less, the customer will get the product from a more reliable source, and hence this sale can be
lost forever.
Encountering seasonality
In case demand is seasonal, then organizations may tend to build inventory of WIP or finished goods in the
lean-period to allow for meeting the peak-period demand. This aggregate production planning can reduce potential
bottlenecks faced by companies (Springer, 2014, p. 3). This strategy applies to the orange juice case mentioned
previously.
Supporting production-activities
Organizations hold inventory that is not intended to be sold. This inventory is known as maintenance, repairs
and operations and include spare parts and oils necessary for ensuring smooth production operations (CILT, 2014a).
For Bob’s Company, these include fuels needed to operating machineries (NEDFI, 2017, p. 11). Commented [A16]: All good relevant reasons
Demand variability
In case all products were to be produced at times when they will be sold, little inventories would be carried.
However, demand change from time to time and demand seasonality is regarded as an external factor influencing
inventory levels held. Consequently, during high seasonal demand, inventory shortage problems can emerge. While
In relation to Bob’s Company, fruit juice consumptions register peak sales during Ramadan season, as it
increases by a quarter compared to the rest of the year (EU, 2017, p. 104). However, the majority of juice production
planning and scheduling is not strategically implemented, as processors continue to produce for stocking and Commented [A17]: yes
distribution without matching with the seasonal demand (Ruteri, 2009, p. 7). Consequently, this can be regarded as a
Forecasting
Forecasting is an internal exercise in which all SC partners are involved in the information sharing that helps
in increasing demand visibility. However, poor forecasting efforts can have a direct impact on inventory levels, since Commented [A18]: ref
over-estimating sales can often cause high resulting inventory levels and excess inventory of safety stock (Huff &
Sultan, 2014).
With regards to Bob’s Company, fruit juice companies determine the quantity to be produced according to
the situational demand of the amount of juice packs sold previously. These are used to answer critical questions such
as how much SKUs has been demanded, how many SKUs to be produced and how many SKUs to be stored (Kazeem
etl., 2016). Nevertheless, most forecasting tools are not designed to handle seasonal and intra-monthly variations that
are characteristic of the juice industry (Quintiq, 2014, p. 4). Consequently, forecasting error of Bob’s company can be
regarded as a possible reason for the excess finished goods safety stock indicated in their data analysis. Commented [A19]: good
Customer trends Commented [A20]: market trends as well
Customer trends is an external factor impacting organizations inventory levels. In case a particular product
suddenly starts to sell out in the retailer premises, replenishment order goes to the distribution center, but not further.
When the distribution center reaches its minimum inventory level, the order is placed with the manufacturer, where
the product is delivered until the re-order point is reached and planning for new production is then initiated. This
major weakness in relation to slow reaction to demand trends results in out-of-stocks situation, which implies the
necessity regarding communicating consumer demand trends along the SC (Hulthén, 2010, p. 21).
For Bob’s Company, the latest consumer trend of healthy lifestyle is observed as the main reason for the
increase in fruit juice demand (Štrbac & Savić, 2010). Accordingly, this can be a reason for the stock-out issue of raw
materials and finished goods experienced within the company. However, health concerns have driven customers to
move away from drinks with high sugar content, such as citrus drinks (Martin, 2017). This indicates Bob’s 5.13% of
total inventories that had no sale, while the production of new items increased their quantity. Commented [A21]: yes
A major reason for building-up inventories of raw materials, WIP and finished goods is attributed to the time
gaps between the placing an order and the time when initiating production. Ideally, just-in-time production and supply
would occur, as the customer would wait until the product is delivered and no inventory would be necessary to held.
Conversely, this is not always the case, as customers would place orders that are either required immediately at point-
of-sale or within short time-periods (CILT, 2014b). Accordingly, this forces companies to hold inventory to shorten
With reference to Bob’ Company, building up stocks of raw materials such as plastic-bottles is due to the time
involved in waiting for missing materials necessary for production. Correspondingly, stockpiling WIP is associated with
juice mixing and pasteurizing waiting times, as it becomes problematic during busy seasons especially, where having
insufficient WIP inventory contribute to low output and thus longer lead-times. However, the cartoon packaging lines
involve serial work steps and workers need to maintain the lines action by exchanging the product from one to another
resulting in longer lead-times (MIETTINEN, 2011, p. 39). These factors have a direct impact on Bob’s high inventory
levels, as such stockpiled raw materials, WIP and finished goods are shown in their data analysis as excess inventories
A firm’s quality performance “output” can only be as good as the quality performance of its suppliers input.
However, when quality problems occur, the producer receives the blame, since customers assume that the producer
has the ultimate responsibility for the product. This is where companies fail to meet their customers’ expectations and
In relation to Bob’s Company, citrus fruit quality are influenced by factors such as climatic conditions, as this
factor causes differences in concentrated juice quality among commercial citrus production areas. This is due to
diversity among citrus cultivars in their response to climate, which is a considered aspect for market quality (Zekri,
As stated by Tetra Pak (2018), orange juice quality depends considerably on the quality of the orange
concentrate. Accordingly, Bob’s Company may tend to stock these to counter for quality uncertainty among different
seasons. Correspondingly, frozen juice concentrates have a shelf-life and will maintain best quality for about 18
months (TreeTop, 2017). If inventory with a life-cycle is not used in the production or sale, organizations might be
forced to write-off inventory (Huff & Sultan, 2014, p. 6). Consequently, the data analysis of Bob’s Company shows that
in 2017, 16.69 % of total inventories did not move. Thus, it can be assumed that the 3.95% of inventory that were
reduced, due to time expiration is their frozen concentrates inventory. Commented [A24]: plausible good
Inventory management strategies: Commented [A25]: 870 wc
The issues mentioned earlier implies Bob’s Company need to implement inventory management strategies
that can improve its current inventory management practices. These strategies will be discussed as follows:
ABC analysis
ABC classification is used to classify stock based on the “Pareto Law”, which mentions that 80% of stock values
is represented by 20% of stock items. Consequently, items will be divided into A-class, where items carry most value
and less volume, B-class, as these items carry medium value and medium volume, while, C-class are the items carrying
ABC advantages include increasing control level over inventory, which will increase the customer service levels
through ensuring the availability of materials. Moreover, optimizing storage will reduce holding costs. However, the
implementation is complex and requires significant amount of time and cost. Additionally, paying much attention to
A-class can result in suppressing the items from groups B and C. (NOWOTYŃSKA, 2013, p. 3) (Salem & Mazhar, 2014,
p. 3&4).
Implementation
Since Bob’s Company is facing issues with high inventory levels and other inventories stock-outs of raw-
materials, WIP and finished-goods, ABC analysis optimize its inventory through implementing better control measures
in relation to frequent monitoring. Accordingly, items classification will be according to their relative importance. Commented [A26]: Be more specific re the information
provided in the case which one is ABC addressing ?
Information-sharing
For Bob’s Company, limited access to timely information regarding customer requirements with respect to
supply quantities may lead to inventory shortage or excess. Therefore, installing information system such as ERP and
MRP will aid in obtaining real-time information, which helps in managing inventories (Namagembe & Munene, 2015). Commented [A27]: how
ERP
with suppliers, customers and business partners (Ovidiu & Dascalu, 2010).
Advantages and disadvantages
Implementing ERP system provides real-time information regarding demand resulting in better inventory
control to avoid both bottlenecks and high safety stocks. Additionally, facilitating quick-response eliminates strain Commented [A28]: ref
about raw-materials availability and reduce the need for storing high stock levels. With information, manufacturers
can know when and how much to produce and what stocks to hold, which helps in reducing stock-outs and shortening
lead-time, while information provision enables better forecasting (Namagembe & Munene, 2015) (Nemati &
Mangaladurai, 2013, p. 13). However, ERP deployments require substantial financial investment and is time-
consuming that may take up to 5years (ADRIAN-COSMIN, 2015). Moreover, ERP inflexibility is one constraint, because
once an ERP is installed, it is difficult to change how the works is organized (Conteh, 2015).
MRP
According to the CILT (2014c), MRP is a production planning and inventory control system used for dependent
demand items. The basis of this concept is to have stock when it is required in the production process, rather than
simply replenishing standard stock levels. Accordingly, the acquisition of stock items will highly depend on the rate of
their usage. Commented [A29]: not clear which issue you are addressing
As materials move down the SC, the activities performed add costs and value to these materials, while the costs
raise as a consequence of storage and handling. Then, the return-on-investment is likely to be affected by the
inventories cost (CILT, 2014c). Accordingly, MRP can reduce inventory levels, which will result in improved return-on-
investment (Tanna, 2017). Moreover, with material tracking, MRP ensures that EOQ is achieved for all lot orders.
Correspondingly, it requires accurate input information, since incorrect input will result in incorrect output.
Furthermore, it needs substantial investment of time and capital (Imeti & Miroslav, 2015, p. 4).
Implementation:
For Bob’s Company, integrating ERP and MRP can present a relatively short-term view of material activity.
Accordingly, information sharing will aid in timely respond to demand, as production ingredients will be obtained and
used in production batches within several days of being picked. Then, finished-goods will be shipped to distributors
once they are completed and minimum will be made to stock (Oracle, 1999, p. 18) (ProcessPro, 2017).
JIT:
The basic principle of JIT is to eliminate the manufacturing waste sources by obtaining the right quantity of
raw materials in the right place at the right time. The characteristic of this system include small lot sizes, frequent
delivery and short lead-times. These have a positive impact on the inventory levels carried within a manufacturing
JIT advantages include completing the production sequence at the time it is requested by clients. Thus,
minimizing products chance of obsolesce, while cutting down on time. Furthermore, the transparency in processes
needed decrease the amount of inventory held to support this activity resulting in raising the return-on-investment.
However, it requires precise and constant information exchange regarding demand and it has risks related to
Implementation:
For Bob’ company, implementing JIT in their juice production plant can reduce lead-time and inventory levels,
since raw materials will be obtained to produce the right amount of products at the right time, thus reducing stock of
raw materials and finished goods and reducing obsolescence issues (Hossain & Uddin, 2015a, p. 9). A study done in a
mango juice processing line suggested that with the implementation of JIT, unnecessary waiting time was reduced in
raw materials and finished goods inventory (Hossain & Uddin, 2015b, p. 8). Commented [A30]: I wanted to see which issues these would
address , The information provided in the case was given for a
reason.
stock-outs. Accordingly, inventory management practices are implemented to achieve a balance between minimum
and maximum inventory levels, while reducing holding costs and meeting demand.
Commented [A31]: Ok fine but why different formats ??
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Met criteria to an Met criteria to a very Met criteria to a Did not meet
excellent standard good standard satisfactory standard Criteria
A B C F
(30 – 25.5) (25.4 – 21) (20.9 - 18) (17.9 - 0)
(20 – 17) (16.9 – 14) (13.9 - 12) (11.9 – 0)
(10 – 8.5) (8.4 – 7) (6.9 - 6) (5.9 - 0)
All types of inventories are All types of inventories are Most types of inventories Some types of inventories
identified and excellently identified and well are identified and have not been identified
Inventory described. described. described. and/or not adequately
identification Importance of inventory Importance of inventory Importance of inventory described
management and the management and the management and the The importance of
reasons a company need reasons a company need reasons a company need inventory management
30 Marks to have inventory are to have inventory are well to have inventory are and the need to hold
excellently explained. explained. somewhat explained. inventory are poorly Commented [A32]: WD 28
described.
Factors affecting Inventory Main factors affecting Some important factors Only few factors are
Factors Levels excellently cover Inventory Levels are affecting Inventory Levels mentioned
impacting the requested areas, in the explained in the context of are missing, and/or explanations are
Inventory context of the case study. the case study. or explanations do not not adequate.
Explanations are of high Explanations are of good relate to the context of the
Levels
standard and demonstrate standard and demonstrate case study or explanations
an excellent and deep a good overall demonstrate a basic Commented [A33]: VG 27
30 Marks understanding. understanding. understanding of the
concepts.
Strategies are identified Some strategies are Some major strategies are Only few strategies are
and excellently described. identified and properly missing, mentioned
Advantages/disadvantages described. or explanations do not and/or discussion is not
and ease/difficulty to put Advantages/disadvantages relate to the context of the adequate.
Strategies for these strategies in place and ease/difficulty to put case study
Inventory are excellently discussed. these strategies in place or
Explanations are properly are appropriately advantages/disadvantages
Management
linked to the case study discussed. and ease/difficulty to put
and demonstrate an Explanations are properly these strategies in place
30 Marks excellent and deep linked to the case study are not discussed
understanding. and demonstrate a good or explanations Commented [A34]: What you presented was good , but I
overall understanding. demonstrate a basic needed you to relate it to BOB’s 23
understanding of the
concepts.
Referencing All references are Most references are References used are References used are
formatting and comprehensive, support comprehensive and for the satisfactory but could have irrelevant and not of good
theories and effectively most part have been been used better to quality. References are
Layout and use
used. APA referencing effectively used. APA support theories. APA not effectively used and
of references correct referencing mostly correct. referencing partially APA referencing is Commented [A35]: 9
correct. incorrect.
10 Marks