SID: 311100597, 311077285, 311081827, 311059279, 310146887

SECRET SQUIRREL STATIONERY ANALYSIS REPORT

Name Jing Li Pornthip Kanlayanalap Tian Qin Shanju Liu Xin Li Course: TPTM5001 Logistics & Supply Chain Management Group Assignment Student ID 311100597 311077285 311081827 311059279 310146887

Assignment:

Date of Submission: 27th October 2011

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Synopsis
This report is made by MAX Consultant based on the interviews with general manager and other four department managers of Secret Squirrel Stationary (SSS). The objective of this report is to analyse the critical operational issues that leads to SSS Companys poor performance in profitability recently, and provide proper solutions for those related problems in terms of general, finance, marketing, sales, warehouse and inventory management, especially focusing on the warehouse and inventory operational aspect. The potential benefits can be brought by those recommendations are also presented. The detailed implementation timeframe and budget are provided for this organizational reform in the end.

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Table of Content
1. INTRODUCTION .......................................................................................................... 1 2. GENERAL MANAGEMENT........................................................................................... 1 2.1 Current General Situation ................................................................................ 1 2.2 General Analysis ............................................................................................... 1 2.3 Recommendations and Benefits ...................................................................... 2 3. FINANCIAL MANAGEMENT ........................................................................................ 4 3.1 Current Financial Situation .............................................................................. 4 3.2 Financial Analysis ............................................................................................. 4 3.2.1 Stock Write-off Cost .............................................................................. 4 3.2.2 Asset Structure ...................................................................................... 5 3.3 Recommendations and Benefits ...................................................................... 5 4. MARKETING AND SALES MANAGEMENT ................................................................... 6 4.1 Current Marketing and Sales Situation ............................................................ 6 4.2 Marketing and Sales Analysis ........................................................................... 6 4.2.1 High investment in marketing ............................................................... 6 4.2.2 Ineffective advertising strategy ............................................................. 7 4.2.3 Improper demand forecasting .............................................................. 7 4.2.4 Limited target group ............................................................................. 7 4.2.5 Sales analysis ......................................................................................... 8 4.3 Recommendations and Benefits ...................................................................... 9 5. WAREHOUSE AND OPERATION MANAGEMENT ...................................................... 10 5.1 Current Warehouse and Operation Situation ................................................ 10 5.2 Warehouse and Operation Analysis ............................................................... 11 5.2.1 Operation Analysis .............................................................................. 11 5.2.2 Warehouse Location ........................................................................... 12 5.2.3 Warehouse Lay Out ............................................................................. 12 5.3 Recommendations and Benefits .................................................................... 13 5.3.1 Warehouse Location ........................................................................... 13 5.3.2 Warehouse Lay Out ............................................................................. 13 5.3.3 Radio frequency identification (RFID) ................................................. 14 6. INVENTORY MANAGEMENT ..................................................................................... 14 6.1 Current Inventory Situation ........................................................................... 14 6.2 Inventory Analysis .......................................................................................... 14 6.3 Recommendations and Benefits .................................................................... 15 6.3.1 Reorder point ...................................................................................... 15 6.3.2 ABC analysis (Pareto analysis) ............................................................. 15 6.3.3 Safety stock ......................................................................................... 16 6.3.4 Training program ................................................................................. 16 7. IMPLEMENTATION TIMEFRAME AND BUDGET ........................................................ 17 8. CONCLUSION ............................................................................................................ 17
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Reference ..................................................................................................................... 18 Appendix ...................................................................................................................... 19

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1. INTRODUCTION

The target company of this report is a subsidiary company, Secret Squirrel Stationery (SSS), wholly owned by its US parent company specializes in fashionable stationery. At present, SSS performs well in Australian market with a 15% market share and plan to reach 25% market share in the future. However, after a previous five years rapid growth, the net profit of SSS decreased significantly in 2010. This report will analyse the operations of SSS in terms of general, financial, sales, marketing, warehouse and inventory aspects, and provide proper solutions to better its efficiency and profitability. The detailed implementation timeframe and budget are provided for this organizational reform as well. 2. GENERAL MANAGEMENT

2.1 Current General Situation Alan is the General Manager of SSS. The current organizational structure of SSS consists of four major divisions: 1) Finance/ Administration 2) Sales3) Marketing 4) Operation. With all products of SSS designed and shipped from its parent company in US, the SSS general management team only need focus on the marketing and distribution in Australia. Providing the best quality to customers is considered to be the core competitive advantage of SSS. 2.2 General Analysis The organization structure plays an important role in corporate operation. However, the irrational structure of SSS would result in an ineffective operation mechanism. Finance and administration are two crucial parts in a company. It is not a wise move to combine these two parts into a department because they have different responsibilities for the company. This structure makes the function of this department complex and disorder. And this also means that the workload of this department doubled other department, especially Paul. Apart from that, some positions such as accounts payable, accounts receivable, accountant and brand managers are overlapped. Simultaneously, some positions like customer services and IT system are posed under wrong departments. The absence of human resource management unit can lead to a potential disaster for SSS.

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2.3 Recommendations and Benefits The General Manager might have to rearrange the organization structure for the sake of internal efficiency. The administration part should be independent from the finance/administration department with IT, Reception and a newly created HR unit. A new manager needs to assign to manage the administration department. In finance department, the overlapped positions should be abolished and a budgeting position should be set up for the sake of controlling overspending in less productive areas. Customer services should be transferred from finance/administration department to marketing department. One of the band managers needs to be replaced by another assistant brand management. The following Figure 2.1 explains the new organizational structure in details.

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Figure 2.1 SSS new organizational structure

General manager (Alan)

P.A.

Finance (Paul)

Sales (Stella)

Marketing (Barbara)

Operations (John)

Administration

Accounts Payable

State Manager Vic / SA

State Manager NSW / Tas

State Manager Queensland / NT

Agency Distributor W.A.

Brand Manager

Invetory Planner Gary

Reception

Accounts Receivable

Sales Rep (2)

Sales Rep (2)

Sales Rep (2)

Assistant Brand Manager

Warehouse Operators in Vic

(4)

IT Support

Accountant

Party Planners (7)

Party Planners (7)

Party Planners (6)

Customer service (2)

Warehouse Operators in NSW(3) (Including 1 manager) IT Logistic system Management

HR

Budgeting

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3. FINANCIAL MANAGEMENT

3.1 Current Financial Situation The financial management of SSS is mainly formed by three staffs under the Finance and Administration division headed by Paul. They are in charge of budget planning, finance reporting and audit, and payables and receivables administration. The detailed financial information of actual profit and loss for last five years is indicated in the Table 3.1.
Table 3.1: Actual P&L for Last 5 Years Actual P&L For Last 5 Years 2006 Sales Total COGS Gross Profit Operating Costs Stock Write-off Taxes Net Profit Gross Margin Net Margin Sales Growth Rate $14,275,000 $8,136,750 $6,138,250 $5,272,700 $17,500 $254,400 $593,650 43.00% 4.16% N 2007 $20,153,300 $11,688,914 $8,464,386 $7,350,200 $93,500 $306,200 $714,486 42.00% 3.55% 41.18% 2008 $24,711,300 $12,849,876 $11,861,424 $9,750,500 $154,000 $587,100 $1,369,824 48.00% 5.54% 22.62% 2009 $27,321,000 $15,846,180 $11,474,820 $9,873,000 $73,000 $458,600 $1,070,220 42.00% 3.92% 10.56% 2010 $29,249,000 $16,580,000 $12,669,000 $10,180,000 $1,200,000 $461,000 $828,000 43.31% 2.83% 7.06% Budget 2011 $32,000,000 $17,600,000 $14,400,000 $11,200,000 $500,000 $810,000 $1,890,000 45.00% 5.91% 9.41%

3.2 Financial Analysis 3.2.1 Stock Write-off Cost As can be seen from Table 3.1, the sales of SSS increased gradually from 2006 to 2010, while the net profit rose from 2006 to 2008 and then experienced a noticeable decline after 2008. The gross margin sustained around 45% with very little change in the previous five years, while the net margin experienced a decrease on the whole and reached the lowest point 2.83% in 2010. From Chart 3.2, we can see that the cost of stock write-off practically increased every year except for a short decrease in 2009. In 2010, there was a striking stock write-off cost ($1,200,000), compared with the previous years tiny cost ($73,000), and this was the first time for SSS that the stock write-off cost overweighed the net profit. It is obvious that the main reason for the decline in net profit should be the sudden jump in stock write-off cost after 2009. Some actions should be taken to achieve a lower stock write-off cost $500,000 in 2011.

SID: 311100597, 311077285, 311081827, 311059279, 310146887 Chart 3.2 Net Profit & Stock Write-off Fluctuation in 2006-2010

3.2.2 Asset Structure There is another asset structure problem can be found by analysing the specific data of 2010 in Table 3.3. It is noticeable that inventory occupied approximately 91% of the whole assets. Although reasonable inventory can buffer supply and demand uncertainties, the excessive inventory can lead to high logistic and operational costs. The high inventory proportion also resulted in a bad asset structure. Specifically, cash was only $129,000, less than 1.6% of the whole assets. Low cash proportion can lead to low cash liquidity. As the quick ratio is only 0.3271:1, much lower than the empirical statistics 1:1(Anonymous, 2005), the short-term liquidity of SSS is relatively weak. This means that SSS does not have sufficient liquid cash to deal with emergencies. Additionally, the lack of cash can lead to high capital cost, since SSS may have to borrow money from financial market to support its normal operation. It is reasonable for SSS to decrease the inventory proportion in its whole assets and maintain proper cash proportion to ensure company normal operation.
Table 3.3 Assets and Liabilities of Secret Squirrel Stationery in 2010 Current Current Inventory Cash Receivables assets liabilities $7,492,000 $129,000 $607,000 $8,228,000 $2,250,000 Current ratio 3.6569:1 Quick ratio 0.3271:1 Cost Of Capital 10%

3.3 Recommendations and Benefits To achieve the goal of 2011 budget, the stock write-off cost should be decreased over 50% compared with that in 2010. Apart from that, the proportion of inventory in the whole assets of SSS should be reduced as well. These goals cannot be fulfilled without consideration of the overall operational flaws in the sector of marketing, sales, warehouse and inventory.

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Apart from that, it is also feasible for SSS to negotiate with buyers and creditors to shorten the period of reclaiming the receivables and extend the period to pay liabilities for the sake of enhancing the cash proportion in the whole assets. 4. MARKETING AND SALES MANAGEMENT

4.1 Current Marketing and Sales Situation Marketing plays a vital role in operating business successful as it contracts customers directly and enhances a great relationship with them. A good marketing decision can increase the financial sales and profits. Marketing cost, advertising method, demand forecasting and target group should be taken into consideration by SSS Company in making the correct marketing decision. In addition, the history sales data also can be analysed to help the company to make the right sales strategy. 4.2 Marketing and Sales Analysis 4.2.1 High investment in marketing As can be seen from the chart 4.1, it is showed that there is high investment in marketing at 37%. Even though it is slightly lower than sales overhead at 41%, the sales division is the most important part to enhance the profit to a stationary company without production department. Comparing with the high marketing cost, SSS Company spends little money on logistics, which is 6%. However, logistics is of most importance to control inventory and meet customer demand in terms of delivering the products on time.

Chart 4.1 the breakdown of operation costs

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4.2.2 Ineffective advertising strategy There are two main points which should be considered in this strategy. Firstly, the advertising channels, the company mainly advertises their products through radio programs and magazines which is obsolete advertising method and cannot access to a wide range of customers. Secondly, lacking of brand awareness, the companys brand is infamous and is not easily recognizable. As a result, the products cannot attract more customers. 4.2.3 Improper demand forecasting Improper demand forecasting might be another issue to hinder the development of Secret Squirrel Stationery Company. All the products are produced by the parent company located in Unite States, which is lead to the ignorance of the demand of the local market in Australia. However, the customer demand in the production is not the same due to the culture diversity. This inaccuracy of demand forecasting might hamper the achievement of the market share target of SSS Company from 15% now to 25% in the future. Apart from that, the information of monthly demand should be taken into account by SSS Company. For instance, March, October and November are the best sale three months. To find the reason why it is popular in these seasons is useful to forecast the correct customer demand to make the best marketing decision. 4.2.4 Limited target group SSS Companys target customers are 35-65 housewives. However, to increase the market share by 10% within five years, this target group is limited. If SSS Company insists to focus on their original target customers, the future is not as bright as they think. Because the fashion style product in stationary is not popular among housewives in this range of ages.

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4.2.5 Sales analysis

Chart 4.2 Annual sales divided by categories

Table 4.3 Annual sales divided by categories ITEM ALBUM Refill Pages Cover set Bat Penguin Ant Decorating Simple Card Funky Thing Handbook OTHERS VALUE $ 8,813,624.54 $ 3,745,080.90 $ 2,215,895.00 $ 1,475,754.00 $ 1,398,906.00 $ 1,179,318.75 $ 1,069,228.60 $ 960,885.71 $ 917,675.00 $ 728,820.40 $ 4,446,190 PERCENTAGE 33% 14% 8% 5% 5% 4% 4% 4% 3% 3% 16%

Pareto analysis is a method of classify items of products which is 80% of sales are from 20% of products(Pienaar and Vogt, 2009).This can help explain the sales of SSS Company situation that Top 10 categories, 726 types, which includes around 20% type of products account for 84% revenues while other 16 categories almost 80% products only contribute to 16% in SSS Companys revenues. Album is the best sale category in this company. The following two categories are refill pages and cover set which is 14% and 8% respectively.

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4.3 Recommendations and Benefits To optimize the resource of SSS Company, the marketing expenditure should be reduced through some more useful advertising channels and effective research. On the other hand, logistics should be more concentrated in order to increase efficiency of operation in SSS Company. Improving the advertising strategy, the company should increase more channels in order to access to a large number of customers. For example, advertising through internet such as Facebook and Twitter would make target group more easily access to products as these software are becoming popular communicating method among them. In addition, the company should develop brand awareness by creating slogan, advertising and adding value through packaging, service and special events(Gustafson and Chabot, 2007). In terms of improper demand forecasting, EDI (Electronic Data Interchange) is useful to SSS Company achieving their market share target. EDI is a method to exchange the statistics and conduct it automated through internet between trade partners according to the business standard(Kantor and Burrows, 1996). The reduction of the cost of stocks, the decrease the probability of errors in progress, improvement of the relationship between suppliers and customers, and a stronger competitive power are the main benefits brought by EDI system to SSS Company. In addition, the local market preference and seasonal demand which are collected by EDI system play an important role in making a correct marketing direction. Apart from that, some questionnaires and market research not only help SSS Company get information they need, but can be another type of advertisement. Another thing should be considered is the extension of target group as fashion is the key characteristic of SSS Companys product and young generation is more likely keep pace with the latest fashion. Creating potential customers including young generation might be good choice to increase the market share to 25%. As to sales department, to maximize the companys profit, sales strategy should be focused on these top 10 products. Meanwhile, reducing the inventory of other type products can shrink the cost of stock write-off to minimize the operating cost. Furthermore, the reliable sales forecasting can reduce the loss of the company because of avoiding wrong actions such as unnecessary safe stock or impropriate marketing promotions. Therefore the viable sales forecasting based on the historical sales data is necessary to a good inventory management which is very important in SSS Company providing products relying on inventory. And the historical sales information and the sales forecasting in 2011 are showed in the below graphs.

SID: 311100597, 311077285, 311081827, 311059279, 310146887 Chart 4.4 Sales by Month in 2010

Table 4.5 Sales by Month in 2010 and forecasting in 2011 month sales in2010 Monthly Proportion in 2010 January February March April May June July August September October November December total $1,852,000 $2,550,500 $3,183,870 $2,275,300 $2,163,520 $2,000,040 $1,802,670 $1,954,880 $1,873,000 $3,275,720 $3,392,200 $2,925,300 $29,249,000 6% 9% 11% 8% 7% 7% 6% 7% 6% 11% 12% 10%

forecasting in2011 2,026,188.93 2,790,386.00 3,483,327.29 2,489,302.20 2,367,008.79 2,188,152.76 1,972,219.22 2,138,745.26 2,049,164.07 3,583,816.20 3,711,251.67 3,200,437.62 32,000,000

5. WAREHOUSE AND OPERATION MANAGEMENT

5.1 Current Warehouse and Operation Situation Warehouse management is an important sector of SSS logistics function. Currently, SSS owns only one warehouse in Melbourne. Once ordered, products are delivered from the warehouse to demanding places across Australia. A warehouse management system WISE is implemented with little help, and the average pick-up time for products is about 2 or 3 days.

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5.2 Warehouse and Operation Analysis 5.2.1 Operation Analysis From Chart 5.1, a number of reasons which lead to out of stocks on warehouse supplied item have been demonstrated: Store personnel unaware of potential OOS Condition Did Not Order Item and Promotion Forecasting and Ordering are the two main reasons (54% and 19% respectively). Hence, unaware of potential OOS Condition and Promotion Forecasting play the core role in OOS.
Chart 5.1 the key result in out-of-stocks on warehouse supplied items. Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

Forecasting a key Cause of Out of Stocks on Warehouse Supplied Items

3% 54% 16% Shelf Capacity Inadequate 19% Backroom/Display Inventory Not Restocked To Shelf Store Personnel Unaware of Current/Potential OOS Condition Did Not Order Item Promotion Forecasting and Ordering

8%

Lack of effective IT tools, SSS Company could just rely on experiences to predict future needs. There is no doubt that forecasting is still regarded as a critical way for business. Forecasting is not only making predictable plans and formulating programs but also refer to the shipment and sales history to predict future needs. Based on the process of operation management, a series of uncertainties may affect the replenishment which could not all be eliminated by relying on forecasts. SSS Company lacks of several IT tools such as EDI and VMI program which could precede the operation function and this company might be difficult to understand the information about the inventory level of distribution centre in time(Anonymous, 2011). Additionally, the old WISE information system is unable to reach the growing demand of the warehouse management. When one kind of stationery is out of stock in distribution centre, SSS Company could hardly dispatch the products immediately to its customers, which could have a negative influence upon the transaction.

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5.2.2 Warehouse Location The reasonable route for international shipment between SSS and its parent company in USA is crossing the Pacific, along the southeast coast of Australia. It is a reality that Melbourne is the deliver centre of SSS Company. However, the distance is obviously longer and it takes more time than delivering the products to Sydney. Furthermore, the data of the percentage of sales in Australia is showed in Figure 5.2:
Figure 5.2 Sales in Australia

According to the map, New South Wales occupies 38% of the total products which is the biggest part, followed by the other two parts along the east coast, Victoria and Queensland (25% and 21% respectively). According to above, SSS Company may build a new warehouse in Sydney and the distribution centre should be transferred from Melbourne to Sydney. Then, both the total routine of delivery inland and the routine between the warehouse and the US parents company could be cut down significantly. More specifically, the delivery cost and delivery time could be decreased greatly. 5.2.3 Warehouse Lay Out Researches on design requirements and principle constraints of the location and the warehouse are very important. However, the operational manager of SSS Company made an inappropriate decision that the layout does not allow goods to flow in a straight line. Hence, it is time-consuming for workers to walk around and pick up the goods which reduce the movement efficiency in the warehouse.
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The lay out of products in the warehouse is disordered. Workers, basically, place the products where they normally place it and memorize the location. As a result, when products are urgently needed and the location is unknown, it could result in the delay in delivery process and lead to the inefficient operation. Moreover, the containers are place on the ground. As a result, it may damage the products. Also, it could need more time and effort to lift the containers up from the ground. 5.3 Recommendations and Benefits 5.3.1 Warehouse Location Therefore, in a long-term strategy, building a new warehouse in Sydney and transferring the distribution centre from Melbourne to Sydney. It is not only because of the cost aspect, but also better to promote the future market in New Zealand. 5.3.2 Warehouse Lay Out Due to the disordered layout in the warehouse, employees can only find the required products based on their memories. Significantly, the unprofessional conduct increases costs, inefficiency, and delivery inaccuracy. The introduction of ERP resolves such problems. Also, employees that are unqualified need further training. In addition, the new warehouse lay out will be build following the figure 5.3.

Figure 5.3 New warehouse lay-out

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5.3.3 Radio frequency identification (RFID) The old WISE is already out of time so that Radio Frequency Identification (RFID) could be replaced it. RFID, adopted by multinational corporations like Wal-Mart and Kimberly-Clark(Liu, 2003), is an excellent carrier technique in supply chain management. This system would effectively get rid of the occurred errors during the internal transportation. Furthermore, RFID is able to integrate into the whole supply chain for company, which is improving both efficiency and effectiveness simultaneously. 6. INVENTORY MANAGEMENT

6.1 Current Inventory Situation Inventory management, specifically headed by Gary, performs a key role in the overall supply chain. Proper handling of storage, internal transport, and write-off of bad inventory are included in the inventory operations. At current stage, there are over 2000 products being stored and the number of demanded products is forecasted every month. 6.2 Inventory Analysis The most intractable problem in the past year is that the value of the inventory is an extremely high level. The financial statement indicates that SSS possesses $7,492,000 of inventory that accounts for more than 91.05% of the total assets ($8,228,000) currently and the write-off is $1,200,000. This is not a good signal for the development of the company. Furthermore, the large amount of inventory can also result in a rise of the inventory cost (Hanna and Newman, 2007), which will mirror in the operation of the SSS and need to be taken into consideration. In addition, there are some issues of stock outs incurring the loss in sales. After the interview with Inventory Planner Gary, the inefficient way to forecast the stock leads to overstocks in the warehouse (Mangan et al., 2008). Produce 1 (See Appendix I) was a good example for inaccurate forecast. The value of SOH (stock on hand) was 10376, which was accumulation overstock of previous months. And the forecasts for next months were not rational because the historical data was not considered, which led to the increase value of overstocks. When it came to 2000 items, it would be worse. Further is that SSS did not deploy suitable methodologies for inventory planning and control. In terms of safety stock, seasonality existed in some special months based on the sales in 2010, but the safety stock seems stay in a relatively certain level.

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6.3 Recommendations and Benefits In order to advance the level of inventory management, some recommendations will be given to tackle the current issues for SSS. 6.3.1 Reorder point MAX recommends that calculating economic order quantity (EOQ) could be exerted to determine the optimum order quantity because it is a trade -off or balance between inventory-ordering costs and inventory-carrying cost(Pienaar and Vogt, 2009). The following formula indicates the calculation of EOQ: EOQ = 2/ Where A = cost of an order S = annual sales or demand in units C = annual inventory-carrying cost percentage V = value or cost of one unit The reorder point (ROP) tends to address the issue of the new order when there are some stocks in the inventory(Pienaar and Vogt, 2009). It will calculate by: ROP = D T Where ROP = reorder point in units D = average daily (or weekly) demand in units T = average lead time in days (or weeks) The reorder point system to some degree will optimize the stock in a reliable level. Via calculating, it can probably answer the question of how much to order and when to order?(Pienaar and Vogt, 2009). In another way, it will help to avoid excess stocks, which would result in a more effective and efficient inventory planning in terms of accurate forecasting(Horng-Jinh and Po-Yu, 2008). 6.3.2 ABC analysis (Pareto analysis) ABC analysis can be utilised in inventory classification. As is seen in the product list, there are 2013 items. Only around 700 items were sold in the previous years. By sorting the data according to the annual turnovers of these products, the items could be classified as follow (see Table 6.1): Class A: 10 per cent of Items contributing 58.9 per cent of turnover value Class B: 20 per cent of Items contributing 26 per cent of turnover value Class C: 70 per cent of Items contributing 15.1 per cent of turnover value
Table 6.1 Class ABC for SSSs Items

Class A B C

Item percentage turnover value(%) 10% 58.9 20% 26 70% 15.1

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In the inventory, Class A is the most important part and Gary need to monitor them all the time with a daily frequency in order to guarantee the market demand. Also because of that, they need to be recorded and forecasted more accurately. Comparatively, Class B also required some concerns due to the percentage of contributing turnover but less than Class A in terms of monitoring, recording and forecasting. On contrast, it is unnecessary to spend too much time on Class C. Doing so, the inventory will be controlled in a satisfied level and not leading the issue of over-stocks. ABC classification will help to achieve a decreasing cost in inventory and contribute to reducing the operating costs(Starbek et al., 2000). 6.3.3 Safety stock Based on the order shipment information provided, it normally takes 5-7 weeks for the products from parent company in USA to SSS in Australia. Basically, the general safety stock should be according to the lead times, which means 5-7 weeks for safety stock should be planned in case. For individual products, it is highly recommended to utilise the Mean-Median Mode, which is based on the normal distribution theory, to forecast the safety stock. Since the standard deviation is employed in this methodology, the forecast for safety stock would turn to be more accurate in this point. Furthermore, the financial report of 2010 suggests that the sales in March, October, November and December are much higher than other months. So, the seasonality in these 4 months should be given special concerns whilst considering the safety stock. In this circumstance, the inventory would be minimized in some level rather than over-stock to reduce the inventory costs at largely. After adopting the methodology, the safety stock would be more precise to reach the demand. To be specified, SSS may begin to increase the best-sell product and stop stocking the out-fashioned products that zero in quantity was sold in previous years. In this case, SSS can also benefit from decreasing the write-offs. 6.3.4 Training program The relatively high write-offs indicate that the inventory and warehouse management are irrational in some way. The employees in the warehouse are inexperienced and lacking professional techniques. Therefore, the training program has to be established for advance the employees in the near future. After training, MAX believes that the efficiency of the inventory and warehouse would be significantly promoted(Kaplan and Norton, 2005). By saying that, some useful techniques like FIFO may be hired in the operation process contributing to release the loss of write-offs and changing price in the market.

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7. IMPLEMENTATION TIMEFRAME AND BUDGET

A timeframe table below will elaborate how long time the recommendations will be effective and the benefits if SSS implement them.

8. CONCLUSION

The most issues of SSS are caused by deficient management system of the company s each department. And the problems can be effectively handled by implementing right policies and measures. By using these recommendations in the preceding context, SSS can optimize its structure and improve the management efficiency so as to reduce company s management cost. The company should implement these solutions as soon as possible to gain long-term profits and to keep the competitive advantages. Otherwise, it might be selected out by the increasing market competition.

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Reference

ANONYMOUS 2005. Quick Ratio. Finweek, 49-49. ANONYMOUS 2011. VMI: Road worthy. HME News, 17, 29-29. GUSTAFSON, T. & CHABOT, B. 2007. Brand Awareness. Cornell University College of Agriculture and Life Sciences. HANNA, M. & NEWMAN, W. 2007. Interated Operations Management, Butterworth, Oxford. HORNG-JINH, C. & PO-YU, C. 2008. AN EOQ MODEL WITH CONTROLLABLE SELLING RATE. Asia-Pacific Journal of Operational Research, 25, 151-167. KANTOR, M. & BURROWS, J. H. 1996. Electronic Data Interchange (EDI). National Institute of Standards and Technology. KAPLAN, R. S. & NORTON, D. R. 2005. The Balanced Scorecard: Measures That Drive Performance. (cover story). Harvard Business Review, 83, 172-180. LIU, L. 2003. Survey on evolution of SCM theory and methods. Journal of Management Sciences in China, 6, 81-87. MANGAN, J., LALWANI, C. & BUTCHER, T. 2008. Global logistics and supply chain management, UK, John Wiley & Sons. PIENAAR, W. J. & VOGT, J. J. 2009. Business Logistics Management : a Supply Chain Perspective, Oxford University Press Southern Africa (Pty) Ltd. STARBEK, M., PETRISIC, J. & KUSAR, J. 2000. Extended ABC analysis. Strojarstvo, 42, 103-108.

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Appendix

Appendix I Table I SSS Forecasting Stock ordering example

Appendix II Table II Order Shipment Information 2010

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