PRE-SESSIONAL COURSE: STAGE 5 Management Studies Pathway

Final Written Assignment

Question Number:
Full question
3
Describe the symptoms of poor inventory management. Critically discuss the methods and techniques for improving inventory management, making reference to one of the following sectors:
Option selected:
c) supermarkets

Student Name:
Wang Yue
Student ID number:
201017067
Group number:
Management 14
Group Tutor
Sarah Spicer

5th September 2014

Declaration

The work contained in this project is my own and has not been submitted for any other qualification.

All sentences and passages quoted from published sources have been specifically acknowledged by referencing to author, work and page(s).

Name: Wang Yue
Signature: _____________________________
Date: 5th September 2014

Contents
1 Introduction 4
2 Symptoms of poor inventory management 4
2.1 High inventory level 4
2.2 Frequent out-of-stocks (OOS) 4
2.3 Inventory Shrinkage 5
3 Techniques and Methods 5
3.1 Economic Order Quantity (EOQ) 6
3.2 Vendor-Managed Inventory (VMI) 6
3.3 ABC analysis 7
3.4 Efficient consumer response (ECR) 7
3.5 Radio Frequency Identification (RFID) 7
4 Conclusion 8
References: 9

1 Introduction
Inventory management has been recognised as one of the most important parts of supply chain for both manufacturers and retailers, especially in markets where quick response to consumers needs is required, such as the supermarket industry. By implementing proper inventory control system, retailers can meet the consumers’ requirements and expectations at an optimum stock level and minimum costs (Sharma, 2006). Meanwhile poor inventory management can result in several problems. This essay will describe three main symptoms in supermarkets: overload stocks, out-of-stocks and inventory shrinkage, and then discuss the possible techniques and methods to solve these troubles. 2 Symptoms of poor inventory management
2.1 High inventory level
Inventory overload is one symptom of the poor inventory in supermarkets. Battini (2009) pointed out that many companies choose to build excessive stock in order to meet the customers’ needs and avoid problems that are involved in operations. For example, there may be a case that some goods are highly demanded in an unpredictable period, which requires retailers to hold more stock (Rushton et al., 2010). However, Lysons and Farrington (2006) demonstrated that increasing inventory level may result in a large number of obsolete items and higher costs, which cut down the profits of the company. This is particularly obvious for supermarkets, where food items make up the main part. Therefore, the control of the inventory level plays a vital role in the operations of supermarkets.

2.2 Frequent out-of-stocks (OOS)
On the other hand, poor inventory control can also lead to frequent out-of-stocks, which has a direct and huge influence on the profits of supermarkets. Corsten and Gruen (2003) note that out-of-stocks can risk the retailers’ sales in three ways: OOS goods or replacing OOS with some