Table 4.4 Damage value data per total sales

Transcription

1 Table 4.3 shows the damage products of Produce Department from February to April PH 0 has the same meaning as damage product. It is also known that Produce Department result the highest value of damage. The percentage of damage products per Produce s total sales is shown on Table 4.4. Table 4.4 Damage value data per total sales Feb Mar Apr Produce Damage value 24,835,746 42,428,597 34,114,023 Produce sales 433,922, ,566, ,881,665 % damage 5.72% 9.38% 5.98% Dairy Frozen Damage value 3,196,565 3,621,050 2,906,940 Department sales 154,910, ,179, ,083,769 % damage 2.06% 2.29% 1.65% Meat and Fish Damage value 6,032,967 9,100,127 4,573,488 Department sales 127,268, ,575, ,369,874 % damage 4.74% 3.98% 2.34% The table calculated the number of damage products to department s sales. Compared with other department, percentage damage of produce is higher. The causes of high damage of Produce Department are inappropriate policy of products display which will affect overstock; and customers act. In Produce Department, there are boxes for products display, which is called as green bin. Its green box has certain capacity for each product, for example Apple Malang 72 kg/box, Apple Fuji RRC 56 kg/box, etc. The size of the green bin itself is 100 cm x 100 cm. The place for display has been provided by the HO. It forces the department to always fulfill the display according to the capacity of the display box. Some experiences showed that the quantity of actual sales is not as much as the products displayed. For example, the display for spinach, the capacity of the display is 5 kg than the average sales per day is only 2 kg. This gap caused more than half of the capacity become overstock and will be damage products. The overstock will drive the products to be piled or even felt down. Then, it will increase the number of damage products.

2 Damage products include the products that have been broken, rotten, and inappropriate to be sold. Then, it would be destroyed or sell in repackaged with cheaper price. On display, there also often happened some undesired things, such as amount of broken product caused by customers act. The broken meant is rotten products. All the broken products became damage and it reduced company s sales. The customers act is such entering the nail onto the fruits. 2. Supplier service level When promotion time, Hypermart has high quantity of order than normal time since the demand will increase and there should be a safety stock to avoid out of stock. Hypermart often received poor quality of products when promo time. Even Hypermart has their standard for products received but it is uncontrollable to check one by one all orders since the orders are high and the display should fill fast before store open. Mo nth Feb Table 4.5 Supplier service level of 3 fast moving products Suppli er Supplier Products Qty Qty SSL ID Name Ordered Ord ered Rece ived MULIA RAYA PRIMA, CV - BDG SENTOSA RAYA ABADI, CV - BDG ANEKA BUANA UTAMA, PT - BDG Jeruk Lokam Mandarin Apel Fuji Apel Fuji RRC Jeruk Santang Apel Fuji RRC % % % % % Mar MULIA RAYA PRIMA, CV - BDG Jeruk Lokam Mandarin Apel Fuji % %

3 Table 4.5 Supplier service level of 3 fast moving products (cont d) Mo nth Suppli er ID Supplier Name SENTOSA RAYA ABADI, CV - BDG Products Ordered Qty Ord ered Qty Rece ived Jeruk Lokam Mandarin Apel Fuji RRC Anggur Red Globe SSL % % % Apr MULIA RAYA PRIMA, CV - BDG SENTOSA RAYA ABADI, CV - BDG Jeruk Lokam Mandarin Anggur Red Globe Apel Fuji RRC Jeruk Lokam Mandarin Anggur Red Globe Apel Fuji RRC % % % % % % Table 4.4 showed the service level of top three products in Produce Department from February until April. CV Mulia Raya Prima is one main supplier of Hypermart Produce Department because it supplies top sales products at that season. But, beside CV Mulia Raya Prima, there are other suppliers which deliver some of products supplied by CV Mulia Raya Prima. They are CV Sentosa Raya Abadi and PT Aneka Buana Utama. For example, Hypermart supplies Jeruk Lokam Mandarin from CV Mulia Raya Prima can be backed up by another supplier, CV Sentosa Raya Abadi. The main reason of high or low of SSL are internal problem such as transportation and unavailable of qualified stock for promo time. The transportation is about the fleet that the supplier has. There are overload products that should be delivered then there is no enough fleet for delivery. The unavailable of qualified stock is caused by the supplier should deliver to other clients.

4 3. Too much order Two choices of managing inventory which are there would be overstock or stock out. In the Produce Department, the possibility of too much order will affect leftover inventory and give high damage to the company. Then, too fewer order will influence out of stock and there is less inventory for display. Moreover, one of the policies in this department and it could be said as key performance indicator that the display should be full based on the capacity of the display box. Hypermart often order too many in determining inventory for promo especially for sensitive products. The sensitive products are such grapes, lychee, etc, which should be given more attention on how long it could be survived. Such of sensitive products would be unsold if it looks shabby and not fresh so, it can t be held for long time such another fruits that could be survived until next three days. Promo time is the right time to sell in large quantity than normal season because it is the peak time. So, Hypermart have to estimate correctly about the promo products that would be ordered to fulfill customers demand without have much overstock. 4.5 Solution From the analysis process above, there are three problems faced by Hypermart. The problems are high damage, poor supplier s service level, and too much order. The following table is the solution for those problems. Table 4.6 Solution No Problems Root Cause Idea for Solution KPI 1 High damage products Inappropriate policy for products display which affect overstock and Table 4.6 Solution (cont d) For specific products according to the products sales which are classified into kind of non fast Low dama ge

5 No Problems Root Cause Idea for Solution KPI drive the pile and fall down. moving category, each green bin could be used for two kinds of products, which is still on same class by separating it with temporary dividing wall. Then, the prevention acts of pile and fall down are by not having high pile the products (follow the minimum capacity) and always monitoring the display to replenish the products from storage to display immediately. Customers act For some products which often got customer s cruel acts (for instance apple), could be packed with plastics or such Styrofoam packs. 2. Improper quality and inappropriate quality of products received Lack of communic ation Need of cooperation and communication and more understanding to between Hypermart and suppliers to increase SL. Hypermart could invite the suppliers to discuss the problem about quantity and quality received which is not appropriate with PO. Hypermart and suppliers can find a way to solve the problem together. Higher service level Table 4.6 Solution (cont d)

6 No Problems Root 3. Too much order Cause Only used histor ical data and intuit ion Idea for Solution The determination of order beside based on historical data and intuition, Hypermart could use the newsvendor model theory. KPI Low invent ory Table 4.5 showed the solution proposed for solve and anticipate the problems. The more explanation of the solution is explained below: 1. High Damage Hypermart has its policy in manage Produce s products display. The display should be placed in green bin which has big capacity. For the products that didn t classify into fast moving products, the green bin for display made problem. If the non fast moving products are placed on the same place with fast moving products, there would be many damage resulted because the non fast moving products didn t give as high as fast moving s sales. The high number of damage means that many products are becoming overstock, then, it would raise some chances for piled and felt down. The chance of pile/fall down is actions when products are already on the display and not caused of coincidence by Hypermart s staff. The solution for this problem is divided the green bin into two for the products which have low contribution of sales and not placing high pile on the display and also increase the awareness of the staff to replenish the products immediately from storage to display. It may minimize the number of products damage and Hypermart could order in lower quantity to the supplier for slow moving products. In fact, Produce Department increases high damage than other department. Some factors that affect damage are customers cruel acts. The handling to minimize the broken products caused by that factor could be by packing the products with plastics or Styrofoam pack. The ways to solve the problem are not completely eliminate the number of broken products since the causes of this problem are external factors and it can t

7 be omitted. Ordering with extra package will also have additional cost, but it could be tolerated since there would be decreasing of products damage. 2. Improper quality and inappropriate quality of products received From the data gathered, the supplier service level in Produce Department especially for three products with highest sales in February to April 2007 does not show the good performance. Table 4.4 shows one of main supplier which not delivers products according to the orders. It is done for three months and fortunately Hypermart still have other suppliers that could cover the shortage of the products. Some suppliers also delivered products which is improper quality. This happened usually on promo time since there was not enough time to check one by one of products received. This problem caused by lack of communication between Hypermart and suppliers. The solution is by understanding each other and doing more cooperation and communication in order to discuss and solve the problem together. It purposes to increase the supplier service level and keep the good relationship with them. 3. Too much order Too much order happened on promo time when Hypermart are forced to have large inventory to fulfill customers demand. Usually, Hypermart does not use special method to determine quantity ordered. Historical data and intuition are things needed for Hypermart s staff to do the forecast. By using another method of forecast, it may be able to reduce the quantity stored and damage. The newsvendor model is a method and it is designed for uncertain demand and for the product which has short selling season. Before implementing the proposed idea, the current condition should be recognized. Table 4.6 below is described about the comparison of current condition and proposed condition. Table 4.7 Comparison of current and proposed condition

8 No Problems Current condition Proposed condition 1 High damage Each green bin is used for one kind of product. Display sometime got pile/fall down. Customers act is also come out. The green bin can be used for two products and it will help to decrease the damage. Reduce the number of products piled and felt down. Increase the staffs awareness to monitor and replenish the products from storage to display. 2 Poor supplier s service level Some supplier often delivers products which is improper quality and inappropriate quality with PO. Hypermart could know the problems faced by suppliers because there would be more cooperation and communication to discuss about the problem of poor supplier s service level. 3 Too much order Forecast and order used historical data and intuition and also adjust with inventory on hand. Another determination to forecast and order, Hypermart can use newsvendor model, to estimate seasonal products Newsvendor Model The following explanation is about how the apply the newsvendor model in doing forecast. The product used as the example of this method is apple Fuji RRC in kg. The value used is an assumption since Hypermart does not have complete data about anything related to newsvendor model. Below is the illustration of the model: Table 4.8 Actual daily sales of Apple Fuji RRC on February 2007 in kilogram Date Qty Sold Date Qty Sold Table 4.8 Actual daily sales of Apple Fuji RRC on February 2007 (cont d)

9 in kilogram Date Qty Sold Date Qty Sold Total 2,759 Mean 98.5 From Table 4.8, the mean of actual sales Apple Fuji RRC is 98.5 kg. Then, the standard deviation is calculated from the equation below: STD = [(data1 avg) 2 + (data2 avg) 2 + (data3 avg) 2.] N - 1 STD = [( ) 2 + ( ) 2 + ( ) 2.] 28-1 STD = Other information needed for the calculation of newsvendor model is listed below: Selling price (p) = Rp 11,950 Cost from wholesaler (c) = Rp 9,100 Salvage value (s) = Rp 5,000 Mean (µ) = Standard deviation (σ) = Cost of understock (Cu) = p c = Rp 11,950 - Rp 9,100 = Rp Cost of overstock (Co) = c s = Rp 9,100 Rp 5,000 = Rp 4,100 CSL* = Probability (Demand O*) = Cu/ (Cu + Co) = Rp 2.850/ (Rp Rp 4,100) = 0.41

10 O* = NORMINV (CSL*, µ, σ) = NORMINV (0.48, 98.4, 55.74) = Expected profit = (p - s) µ NORMDIST ((O* - µ)/ µ, 0, 1, 1) (p - s) σ NORMDIST ((O* - µ)/ σ, 0, 1, 0) O*(c - s) NORMDIST ((O*, µ, σ, 1) + O*(p - c) [1 NORMDIST (O*, µ, σ, 1)] = Rp 126, Expected overstock = (O - µ) NORMDIST ((O - µ)/ σ, 0, 1, 1) + σ NORMDIST ((O - µ)/ σ, 0, 1, 0) = Rp Expected understock = (µ - O) [1 NORMDIST ((O - µ)/ σ, 0, 1, 1] + σ NORMDIST ((O - µ)/ σ, 0, 1, 0) = Rp From the calculation above, it is known how many products should be ordered, the expected profit, expected overstock and expected understock earned. The quantity ordered is for everyday order. The current way of determining quantity ordered is by using historical data and intuition. The illustration of ordering Apple Fuji RRC is described by such following story. Apple Fuji RRC is not seasonal products. It always sold in every month and became top ten sales product of Produce Department. Usually, people in charge of planning will order as much as or not far away from number of sales on the historical data last year. The sales of last year data are around 2,500 kg on February Then, the estimation to order for February 2007 is decided based on a month sales. After that it will be divided into per 1, 2, or 3 days orders with the accumulation of those orders based on the estimation. For real, Hypermart has decided to have total order as 3,780 kg to fulfill the demand on February 2007 or 112, 5 kg per day. The gap of the estimation and actual situation made Hypermart has too much overstock as approximately 1,000 kg or around Rp 9,000,000.

11 The measurement of newsvendor model accurateness is difference of number of overstock actual with proposed model. The proposed model showed fewer number of overstock and it will affect the lower damage in Produce Department.